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How and why mid-market hotels are taking over India’s branded sector

December 10, 2018

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

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India’s Private Equity Boom: Don’t Forget the Fundamentals

April 03, 2018

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Private Equity has never been about ignoring the fundamentals: the commercial nuts and bolts of any project which are essential for the creation of real and long term financial returns rather than focusing on short term and often illusory market fluctuations. Ask Warren Buffet and Anthony Bolton (of Fidelity) why they have been so successful over the years and they will undoubtedly point to the importance of active investment strategies, taking a keen interest in the detail of the project and being prepared to hold the stake stock long term until the exit opportunity is right.

And then flip that analysis on its head: the kind of sustainable, long term investments which most investors look for will, by parity of reasoning, inevitably attract increased levels of private equity investors, looking for long term and above market rate returns. So, in assessing the quality and character of India’s underlying economic activity, it is interesting to note the striking increase in private equity participation over recent years.

Take Blackstone, for example, which reported returns in excess of 30% on its Private Equity holdings on the subcontinent since 2011, and that’s the highest for any of its markets (the next being China, where the Fund booked returns in the order of 25%). And scotching the previous glib perception that it might be easy to make money in India but difficult to get it out, Blackstone’s Senior Managing Director in India, Amit Dixit pointed out that “all of that has changed now, since 2014 there has been a good exit environment” leading naturally on to increased stake building by Blackstone on the subcontinent so that it no logner describes itself (in Dix’s words) as a “passive investor”.

Blackstone is recording exit multiples on the subcontinent of up to six times investment value, and its private equity funds have total investments of USD 3.5 Billion in India with plans to add a further USD 2 Billion over the next five years.Its 2013 investment in Trans Maldivian Airways generated an exit multiple of 4.8 when the company was sold to Bain Capital in December last year (for USD 500 Million), and it secured a six fold return on its stake in SH Kelkar following the sale of a further part of its stake last year.

But of course what all of this really tells us is just how important local knowledge is to any private equity investment strategy. There is no substitute for an informed understanding of the workings of the project on the ground, a working knowledge of the nuts and bolts of the business capable of delivering a sustainable return on investment over the long term. And that can be difficult in India where many businesses are family run or owned and wary of outside investors.

That’s where Red Ribbon Asset Management is different from its competitors, because it has placed Indian markets at the heart of its investment strategies since the company was founded more than a decade ago: priding itself on understanding more about India than virtually any other asset manager, with a team of more than a hundred expert analysts and advisers living and working on the ground in India’s key areas of economic expansion, seeking out the best and most profitable projects in the daily workings of its local markets. The Red Ribbon Private Equity Fund is structured to make the most of the opportunities offered by Indian markets in this, the fastest growing large economy in the world.


Red Ribbon CEO, Suchit Punnose said:

The reason why Private Equity activity is so important for any economy is because it acts as a highly effective bellwether for long term, sustainable projects that have real prospects for growth. Private Equity investment has never been about the short term, and as the article points out, its success is dependant on getting to understand the detailed nuts and bolts of the business being invested in.

The current surge in Private Equity participation in Indian Markets (particularly the Real Estate Sector) is very important: it points to real, long term growth prospects in the subcontinent’s markets. And it strongly suggests too that the historic difficulties of investing in local Indian businesses (which have been wary of overseas investors calling for a stake in the business), is now well and truly a thing of the past. Recent activity from the likes of Blackstone is proof enough of that.

And of course Red Ribbon is perfectly placed to take advantage of these trends: with exactly the sort of local, nuts and bolts knowledge of Indian markets that has underpinned the rapid growth in private equity on the subcontinent. The Red Ribbon Private Equity Fund is geared specifically to take full advantage of these opportunities, and our specialist team of advisers in India’s development hot spots certainly won’t be slow in searching them out.


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India’s New Direction in Infrastructure Investment: A Country Break

March 13, 2018

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For those commentators who might have thought they detected a slackening off over recent months in the appetite of Prime Minister Modi’s Government to engage in still further rounds of major infrastructure spending, the Union Budget Statement was something of a wake up call. Anyone sensing a slackening was simply looking in the wrong place, because key infrastructure developments are now happening outside India’s crowded urban conurbations: they’re happening in the countryside.

Rural Infrastructure Investment is the next big thing…

The Union Budget allocated close to Rs 5.97 lakh crore in infrastructure investment for the 2018/19 Financial Year, which is an increase of 21% on the equivalent figure for the Financial Year ending April 2018. So much for a slowing down and a loss of appetite; and that’s not all by any means, because the Budget has also created an “environment for demand recovery” particularly aimed at rural India and which looks set to lead to still further improvements in capacity utilisation and greater private capital involvement in future projects.

The Budget increased Rural Infrastructure spending commitments by no less than 30% percent to Rs 1.43 lakh crore, all of which will go towards increasing rural income levels through providing additional employment and greater market demand through the operation of the multiplier effect in rural markets (bearing in mind of course that the marginal propensity to consume is so much higher in rural areas of India).

Just take a look at the underlying facts if you’re still in any doubt on that.

Nearly 65% of India’s burgeoning population of 125 crore people live in the countryside, so an increase in spending across the board of 30% through ongoing connectivity projects (within the aegis of the Pradhan Mantri Gram Sadak Yojana Programme) is bound to give a major boost to growth. In particular, through new highways that will not only create a welter of additional construction jobs but also by connecting internal agricultural markets; and then there are sanitation projects, projects to conserve and distribute precious ground water and new electricity supply infrastructure, all of which will have positive economic spin offs.

And the Budget also envisages the construction of 51 lakh rural houses this financial year and another 51 lakh next year, meeting a pressing and ever increasing demand for more affordable housing across the subcontinent.

But it’s not all about the countryside by any mean.

57,000 kilometers of new roads have also been slated for construction at a total cost of Rs 19,000 crore; and to put that in perspective, the United Kingdom motorway network is 3,400 kilometers in length (less than a tenth of the new roads now to be built in India). There will also be 600 new major railway stations and a planned fivefold increase in airport capacity with the intention that it should meet the rapid increase in tourist and business travelers visiting India each year: the new capacity will be an eye watering one billion trips a year.

Economic miracles are seldom miraculous or sudden; they are ground out every day in the slow process of infrastructure expansion, but in modern India that process now has real traction and it has started to change the very fundamentals of the subcontinents economy. No wonder then that Red Ribbon still places Indian Projects at the heart of its investment strategies, just as it has done ever since the company was founded more than a decade ago.


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Regulating India’s Cryptocurrencies: The Power of the Eyebrow

March 13, 2018

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When the Governor of the Bank of England was called out of BCCI’s financial wreckage by the Treasury Select Committee in 1995, he was asked to explain his approach to prudential regulation: how would he assert the Bank’s authority over a rogue institution like BCCI in the future? The Committee then sat open mouthed as the Governor explained that his secret weapons were his eyebrows: he would raise them if he disapproved, and he would arch them with particular severity if he really disapproved of what was going on.

No wonder BCCI got away with it for so long…

There was, to be fair, a seed of truth in what the Governor had told the Committee: the problem was, it was a hundred years out of date. In the past the merest suggestion of disapproval from the Empire’s Banker would have been enough to have the most hardened fraudsters quaking in their boots. But those days had long since gone by 1995, which is why the Governor’s comments proved to be so risible. Empires rise and fall, but such hints and dark suggestions can still have their place in modern financial systems, as recent events have demonstrated.

In particular, the seemingly throwaway comment by Indian Finance Minister Arun Jaitley, in the Union Budget Statement of 1 February: he said that the Indian Government did not consider crypto currencies to be legal tender or indeed currency at all, and that steps would be taken to prevent their use in financing “illegitimate activities”. If the current Governor of the Bank of England had made that same comment it would barely have been reported at all let alone raise an eyebrow: but it would seem the Indian Finance Minister has much bigger eyebrows these days.

The comment caused immediate shockwaves across global crypto currency markets (currently being encouraged in the United States, albeit with more enthusiasm in Chicago than Washington). Bitcoin took a stunning and immediate nosedive, losing 17% of its value in a day and falling to a third of its December value within a further two days.

Although Prime Minister Modi’s Government has since clarified that the Finance Minister was talking about cutting off funding for illegal transactions (as indeed he did), rather than the continued existence of the fifteen or so crypto-currency exchanges currently trading on the subcontinent, the fact is that the Reserve Bank of India has been issuing repeated warnings against investing in digital currencies for months now, pointing out repeatedly that they carry substantial financial as well as legal risks. So, the comments made in the Union Budget Statement  (limited though they might have been) could actually point to future regulation of the sector in India.

Particularly so given some large Banks in India have already been working with the subcontinent’s crypto exchanges on their own versions of digital currencies so it would also seem counterintuitive to the wave of entrepreneurial energy sweeping across India at the moment, for the Government to rule out altogether regulating the sector in the future.

And at least if the Indian regulator does ultimately decide to step in and bring order to these evolving crypto currency markets, at least we know that his or her eyebrows will be big enough for the job. While the government hasn’t yet introduced any restrictions on digital currencies, the threat that it might do so has spooked the industry. India’s central bank has also warned that those who invest in cryptocurrencies do so “at their own risk.”

We offer white labelled listed or unlisted funds, bonds and other financial instruments for companies that have their own strategy and distribution network and do not wish to take on the regulatory burden. We take care of the structuring, drafting of the offer document, regulatory approval, listing and issuing of the offer document. Our listed products are suitable for investment from occupational pension schemes, SIPPs, SSASs, QROPS etc.

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Affordable Housing Programme: the Private Equity Boost

February 20, 2018

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We’ve heard a lot recently about policy announcements made in this year’s Union Budget, but what about the headline announcements from last year; how effective have they been in delivering the radical economic programme currently being pursued by Prime Minister Modi’s Government? Well, the answer seems to be very effective indeed, particularly in the case of one of those flagship policies, the Affordable Housing Programme.

Designed to address the subcontinent’s severe shortage of domestic housing resulting from a burgeoning and increasingly urbanised population, the programme has its roots in pre-Modi Administrations which had made housing for all by 2022 a key policy objective and with it (this is what proved to be the problem) construction of no less than 50 Million new housing units. It was never an especially realistic target given the escalating cost of urban land, which was making development more difficult; a creaking infrastructure system and lengthy delays in the planning process.

Prime Minister Modi’s Government has worked to cut the burden of red tape and, of course, its infrastructure-spending programme has already gone far beyond the wildest imagination of even the most cynical observers. And then, finally, to ease the fiscal difficulties of price gearing on new urban developments, last year’s Union Budget introduced a 6.5% subsidy for the poorest buyers combined with a licence to take the entire subsidy on a twenty year loan up front (so making the property more affordable) and then allowing withdrawals from EFPO of up to 90% of the purchase price (with the same effect). And then, most importantly of all, affordable housing was given infrastructure status meaning that the cost of borrowing for developers was radically reduced.

So, has it all worked? Have these initiatives actually attracted the type of long term real estate investor, prepared to commit to a lengthy development cycle of the kind inevitably required to provide much needed new homes?

Of course this type of investment, long term and short term shock resistant, has a name: we’re talking about Private Equity investment, and given the past year has seen a remarkable resurgence of Private Equity investment into affordable housing projects, the answer to our question has to be…yes: last year’s Union Budget has made a considerable difference.

The level of overall Private Equity interest, already strong in Indian Real Estate generally, has risen exponentially in the affordable housing segment: consider analysis this from Arun Natarajan, founder of research firm Venture Intelligence:

Affordable housing has emerged as a significant theme among PE-RE (private equity real estate) investors, especially in the second half of 2017, with both domestic investors as well as international firms placing special focus on the segment.”

The majority of residential project launches in 2017 were, moreover, in the affordable and mid-range price segments, with the affordable segment alone accounting for 45% of the overall supply. And last year in India private equity firms made 67 investments with an aggregate value of $6.1Billion. Around 57% of this went into residential projects with affordable housing grabbing the lion’s share.

Modulex Modular Buildings has a unique part to play in this cycle of explosive growth within the Indian Real Estate sector: founded and based in the United Kingdom, the company is setting up a global franchise designed to develop the use of proven British steel modular technology so as to construct buildings quickly, where they are needed most, in emerging and growth markets and in India in particular. Red Ribbon Asset Management is proud to have founded and to be part of the Modulex Project.


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Indian Infrastructure Projects: it’s good to talk

February 06, 2018

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After decades of bewildering inactivity, the Indian Court System seems to have been jolted into life.

Ask most western lawyers over the past twenty years whether Indian Courts can be relied on to deliver speedy and reliable results to complex claims and they would shuffle their feet and roll their eyes; because, historically, Indian Courts have been very bad at resolving claims with clarity and within a reasonable timeframe with litigation sometimes lumbering on for decades. And make no mistake about it, that mattered because business looks above all else for legal certainly before making investment decisions.

Happily things have been changing fast in the Indian Courts over recent years as they slough off this unhappy reputation: most evidently so in the crucial area of public infrastructure investment.

Take, for example, the decision of the Indian Supreme Court last December in the Eastern Peripheral Expressway Litigation, a cycle of claims brought by local farmers against the National Highways Authority as long ago as 1985, disputing the right of the Union Government to acquire compulsorily a critical half kilometer stretch of land required to complete the Sonepat section of the Eastern Peripheral Expressway. Launched more than thirty years ago, the litigation seemed destined to roll on for another thirty years, but the recently reinvigorated court process in that Indian Judges have become a lot more proactive. The Court ruled in December that the parties (or at least those of them who were still alive) should come together and talk things over, in a meeting room rather than a courtroom so that construction could continue for the benefit of the area at large and for the local farming community in particular. It short, it instructed the parties to talk and reach a settlement…and they did!

The Supreme Court then turned its attention to related cases on non-distribution of compensation for land acquired earlier by the Government as part of the same highways project in Ghaziabad: the local district judge was instructed to take up matters on a priority basis as soon as the NHAI completed its proposals for payment, so the overwhelming likelihood is that the same settlement basis will be reached as in Sonepat with the result that this important Highway will at last be be free to run its full course.

Everyone’s a winner because in all the 135 kilometer long Expressway will deliver signal free connectivity between Ghaziabad, Faridabad, Gautam Budh Nagar (Greater Noida) and Palwal.

It’s a good example of just how much the Courts have changed and how much they  can do to stimulate completion of the increasing number of major infrastructure projects currently on foot across the subcontinent. How jaded now and stale are those old stories of delays in India’s court process. There’s certainly no need for our casual observer to roll his eyes and shuffle his feet.

And where India’s Court’s are taking the lead, its Local Government follows.

Over in Delhi the Union Housing and Urban Affairs Minister, Hardeep Singh Puri has called for the speedy implementation of projects under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and, tellingly, he is using the same vocabulary as the Supreme Court: “I solicit you to meet together to take full advantage of the fast-track approvals and fund releases made by the ministry under AMRUT, by expediting the implementation of projects in the union territory”. Sure enough meetings followed and the Ministry duly released the first installment of 20% of previously committed funds, amounting in all to Rs 160.46 crores.

So when it comes to major infrastructure projects at least, there seems to be a persistent theme…It’s good to talk.

Red Ribbon CEO, Suchit Punnose said:

With such enormous infrastructure projects being green lighted all across India on such a regular basis these days, everything from highways to monorail links to new port facilities, it’s easy to lose sight of the practical realities of bringing these gargantuan projects to completion. No matter what the scale of the funding (and it is enormous) or the vision of the developers (seemingly unbounded at the moment), unless construction proceeds with reasonable speed, it can all end up looking like so much pie in the sky. Just think how long it took to turn the Channel Tunnel into a practical reality (Napoleon laid designs for the first version of the tunnel as part of his invasion planning in 1804).

And just like the Channel Tunnel, the legal system can play a decisive part in the process. Those of us with long enough memories will recall the welter of litigation that best the Channel Tunnel Project in the 1980’s, and which was prevented from killing the development altogether only by a visionary decision of the English Courts to refer the whole mess over for speedy arbitration, which duly settled the tangle of disputes within a year.

How good it is to see virtually the same thing now happening in India. After decades of bewildering inactivity, the Indian Court System seems to have been jolted into life by the same brand of verve that is currently fuelling Prime Minister Modi’s Government.

Anyone investing in Indian projects, of whatever nature, can now do so safe in the knowledge that the Indian Courts are on their side.

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New Sustainability Initiatives: India’s way forward

January 30, 2018

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At the close of the year, barely noticed by the world’s press, India’s Environment Minister, Harsh Vardhan, issued a major policy statement setting out the steps which the Modi Government is planning to take next to reduce air pollution in the subcontinent’s major conurbations (as well as taking a swipe at the municipal authorities in Delhi for, in his view, doing too little too late to get with his programme (but more of that in a moment)).

Vardhan outlined a series of reduced vehicle-based pollution targets, with the added imposition of new (restricted) emissions tolerances and thresholds and they will have application in all of India’s major conurbations…including Delhi.

Although these new initiatives are certainly a step in the right direction, there is (as the Minister himself admitted last month in his inaugural speech), still a lot much to be done: “The Government of India is doing its best regarding the matter… Pollution levels did not touch the severe category on 214 days this year, compared to 181 days in 2016, due to the proactive steps taken by the central government but there are certain critical issues like water sprinkling to curtail air pollution. Likewise, landfill sites are not being maintained properly”.

It was then that Vardhan took the opportunity to criticize Delhi’s local government, alleging it was not doing enough to adhere fully with the exising guidelines designed to manage environmental pollution. Naresh Agrawai (representative, not for Delhi but Uttar Pradesh so it wasn’t as though he was personally aggrieved by the comments) responded to these arch comments by inviting the Minister to refrain from criticizing farmers in his region for supposedly causing pollution through burning stubble or husks after harvest: “Farmers are blamed for causing pollution by burning stubble/husk. The government should take steps to deal with the situation, rather than blaming farmers, because vehicle/industrial emissions and others are also the reasons for it.” He suggested that Mr. Vardhan’s Government could better occupy its time by instead imposing heavier taxes on the owners of polluting four-wheel drive cars in India’s big cities.

And so it goes on: with the Modi Government blaming Delhi’s local government and the farming lobby blaming Modi’s Government and the local Delhi government signing up to the Government’s new programme and saying nothing. But at least it has signed up.

Because, of course, beneath all the politics these are deadly serious issues, so it has to be encouraging in these turbulent times to find a consensus emerging across all political classes in India: determined to do something to secure the future of the environment. All of which is also consistent with India’s new role as the world’s leading sustainability superpower and now the key remaining custodian of the precious commitments enshrined in the Paris Climate Accords.

Red Ribbon Fund Management has always placed India at the heart of its portfolio strategies. Not only because it is the most exciting Growth Market on the Planet but also because India is consistently demonstrating a commitment to environmental protection which is consistent with Red Ribbon’s own core philosophies.

So it’s good to note there is no sign of Prime Minister Modi’s Government slowing up or faltering in that commitment. The rest of the world might care to take notice…

Red Ribbon CEO, Suchit Punnose said:

The article is right to cut to the quick of a process of political manoeuvring that can all too often obscure the importance which the environmental and its proper protection has for all of us, and especially so here at Red Ribbon where the wellbeing of the planet has been at the core of our investment philosophies since the company was founded more than a decade ago.

Yes, we do live in turbulent times where the derogation of the United States from the Paris Climate Accords has made the process of environmental protection more turbulent than it used to be, but we should still recognise that the Indian Government is continuing to take a solid lead in the process in the absence of Washington’s involvement and the latest policy commitments issued by the Modi Government in December are very much to be welcomed. It is, indeed, good to see that it is not letting up in its zeal to have a positive impact on the planet’s future.

Not least because we all stand to gain from that commitment.

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The Money Go Round: how to (really) revitalise an economy

December 12, 2017

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India’s Government has a majority stake in no less than twenty-one of the subcontinent’s banks, quite a few of which (not unlike their counterparts in the west) have been struggling recently to meet capital adequacy requirements imposed by their regulators. But here’s the key difference: whereas the challenges this poses in the west have been met by governments lending funds in return for a controlling equity stake (RBS and Lloyds TSB spring to mind), India has gone about things exactly other way round and, as it turns out, to much greater effect.

Under the new Fiscal Plans announced by the Indian Government on 24th October, these twenty-one Banks will lend the Government $21 Billion (a third of their combined market value) and in return the Government will buy more shares in the Banks. Superficially, it looks like a money go round, but the new policy makes perfect economic sense and it is just the latest in Prime Minister Modi’s striking range of economic initiatives designed to ensure India remains the leading Growth Market on the Planet.

From a macroeconomic perspective,of course, the Indian Banking system suffered nothing like the same catastrophic shocks which were to hit Western Financial Markets in the aftermath of the 2008 Crash; but most Banks on the subcontinent did embark on something of a lending spree following that crash, suffering perhaps from the peculiar species of schadenfreude often inspired by having (much) more money when most of your neighbors have none.

And these heady years of untrammelled and often imprudent lending decisions eventually collided headlong with the buffers of the financial reforms instituted last year by Prime Minister Modi’s Government: demonetization (of course) but also the new GST regime and a raft of new policies designed to root out historic and bureaucratic bottlenecks and inefficiencies in the subcontinent’s markets, plus a reinvigoration of arbitral and legal procedures for good measure.

Set in that context, the liquidity bottlenecks in the banking system were never likely to escape the same tide of reforming zeal. And, indeed, they haven’t.

That’s what last month’s banking initiatives were all about.

State owned banks in India are expected remove a staggering 10.5 Trillion Rupees (£163 Billion) worth of bad and doubtful debts from their books. This will in turn increase their capacity to make new loans and, to paraphrase Milton Friedman, not only mitigate “the harm done by a few men who wield vast financial power over a country’s monetary system”, but positively demonstrate that a few more men (in the Indian Finance Ministry) can work positive good in their place.

Given bank equity margins on the subcontinent have been  nudging perilously close recently to regulatory minima, this new injection of capital (framed though it is in an ingenious and, to western eyes counterintuitive way) will inevitably lead to a radical improvement in liquidity levels across the Indian economy.

That also seems to be a view shared by the markets since the new initiatives were announced: share prices in the banks participating in the scheme rose by more than 25% last month. And it’s not as though Indian markets won’t have the capacity to find worthwhile ways to spend all this new money: the subcontinent is currently the fastest growing large economy on the planet with infrastructure spending running at an all time high.

What’s not to like?

Red Ribbon CEO, Suchit Punnose said:

Under new Fiscal Plans announced by the Indian Government on 24th October, twenty-one of the subcontinent’s leading banks will lend the Government $21 Billion (a third of their combined market value) in return for the Government taking an increased stake in their shares. Superficially, it looks like a money go round, but the new policy makes perfect economic sense and it is just the latest in Prime Minister Modi’s striking range of economic initiatives designed to ensure India continues to be the leading Growth Market on the Planet.

Even though the Indian Banking system suffered nothing like the same catastrophic shocks that nearly crippled Western Financial Markets in the aftermath of the 2008 Crash, most Banks on the subcontinent embarked on something of a lending spree following the crash. Something had to be done to rein the consequences of that in and improve liquidity levels across the economy.

And as with so much in recent years, Prime Minister Modi wasn’t slow to meet the challenge.


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An Expansive Monetary Policy: Renewing India’s Infrastructure Markets

November 14, 2017

Economics(1), Economy(48), Highway Construction(1), India(67), Infrastructure(20), Milton Friedman(1), Prime Minister Modi(11),

Speaking in a typically candid interview in 2000, just a few short years before his death, Milton Friedman took (for him) unusual care in distinguishing between two of the critical “classes” of spending that made up Roosevelt’s New Deal Economics of the 1930’s, both critical to the subsequent expansion of the U.S. Economy: “One class was reform: wage and price control, the Blue Eagle, the National Industrial Recovery Movement. I did not support those. The other part of the New Deal was recovery through motivating the economy to expand through infrastructure investment … an expansive monetary policy. Those parts of the New Deal I did support.” You can imagine the eminent economist jabbing the air with his finger as he spat out the word “did”.

And although you probably haven’t heard that here first (chances are you haven’t), these comments can still cause surprise: coming as they do from the arch monetarist and seeming enemy of expansionist spending programmes. But of course, they shouldn’t, because Milton Friedman was well aware that infrastructure spending is the engine room of any modern economy, and no modern economy can afford to ignore it.

The lesson certainly hasn’t been lost on Prime Minister Modi’s Government in India, which for the last three years has been pursuing one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scale for any economy, anywhere in the world.

By way of only one example, the Government announced on 23 October that it was embarking on one of its biggest highway construction programmes so far on the subcontinent: involving no less than 83,677 km of new roads at a cost of Rs 6.92 lakh crore (nearly £81 Billion); with the whole, titanic project due to be completed within five years and creating at least 3.2 Million hours worth of additional employment across the country before the works are completed.

Prime Minister Modi declared in opening the scheme that the new programme would “transform India through roads”; and in doing so he seems to have chosen his words as carefully as Milton Friedman, because that phrase comes straight from his predecessor in office, Atal Vajpayee and Atal Vajpayee certainly knew a thing or two about building economic success on ambitious infrastructure programmes.

Vajpayee launched the Golden Quadrilateral Highway project in 1999, so as to link Delhi, Mumbai, Chennai and Kolkata by road. It was, at the time, India’s most extensive highway project ever and the scale of this ambition was already apparent from Vajpayee’s earliest inaugural statement: “The highways we are building under the National Highways Development Project are not mere highways. They are the bhagyarekha (lines of destiny) on the hands of our nation. With these highways, we are writing a new destiny of India.” Prophetic words indeed: the Golden Quadrilateral has become today’s beating heart of India’s transport infrastructure during its subsequent years of rapid economic expansion.

When it comes to infrastructure spending then, there seems to be a simple lesson: if it isn’t broke, don’t fix it. Copy it instead.

Red Ribbon CEO, Suchit Punnose said:

The Indian Government of Prime Minister Modi has just announced that it is about to embark on one of its biggest highway construction programmes yet: 83,677 km of new roads at a cost of Rs 6.92 lakh crore, with the whole, titanic project due to be completed within five years and generating at least 14.2 crore additional days of employment before completion. That should come as no surprise for an economy that is embarking on one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scope for any economy, anywhere in the world. We take a look at why these infrastructure programmes are so important for the future growth of the economy.

Read about Indian Infrastructure Policies here: 

Read about Infrastructure Economics here:

Read about the Golden Quadrilateral Highway here


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Beating a path to its door: the Growth of India’s International Markets

October 24, 2017

British Economics(1), David Ricardo(1), Delhi(1), Delhi Metro System(1), Growth Markets(55), India(67), Prime Minister Modi(11),

David Ricardo, the father of British Economics, wrote in 1817 that it was impossible for capital to be invested abroad. Herbert Spencer begged to differ forty years later:  “Look at the European continent. All European capitals have light because a British gas company provides them with gas…you say that the Germans are far ahead of Great Britain. But look at Germany. Even Berlin, the capital of the German Reich, would be in the dark if a British gas company had not invaded the country and lighted the streets.” David Davies might take a note of that when he sits down with Michel Barnier again next month.

But of course, times have changed since David Ricardo. The great economist was right about so much, but he was fundamentally wrong about international markets and today’s world marches to the beat of a very different drum. Overseas investment matters enormously, adding to the vitality and vibrancy of any economy, which is why Japanese Prime Minister Abe’s visit to India last month was so important (sandwiched in just before his surprise re-election campaign). For the past decade and a half, Japanese investment has played a hugely significant part in shaping India’s economic success story: more than $25 Billion has been invested into the subcontinent by Japanese Corporations in the last seven years alone. Japan is also the third largest external investor in India, projected to spend $35 Billion over the next three years, in addition to which its Government has tasked the Mizuho Financial Group with seeking out new investment opportunities with the object of reinvigorating future spending programmes.

The relationship is that important to both countries.

Abe met Prime Minister Modi on his trip last month and laid the foundation stone for the new Mumbai to Ahmedabad Bullet Train which comes hard on the heels of works commencing on Phase 1 of the Delhi Metro System (also involving huge Japanese investment) and that in turn followed the huge Delhi-Mumbai Industrial Corridor Project which began more than a decade ago: all of them underscoring the sheer scale of Japanese involvement in India’s infrastructure programmes.

And these are precisely the sort of outward looking initiatives that have come to characterise the Indian Government’s investment strategies over recent years, helping to turbocharge its economy through a succession of eye wateringly large infrastructure projects which have helped turn the subcontinent into the most significant Growth Market in the world with foreign exchange reserves rising to a giddy $400 Billion this year and inflation seemingly pegged at 2%. No wonder the world is beating a path to its door.

Since the company was founded more than a decade ago, Red Ribbon Asset Management has always placed India at the very heart of its investment strategies, at the very heart of its investment strategies which aim to deliver above market rate returns above market rate returns for its investors in one of the world’s most exciting markets.

Read about Mizuho Bank in India here

Read about the Mumbai to Ahmedabad Bullet Train Project here

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