12 Feb 10 Random thoughts at an investment conference
Earlier this week, while at Terrapin’s India Investment Summit 2010, I got a full dose of the learned views of fund managers, economists and other experts. Much of this comprised the usual “politically correct” themes that one hears at most conferences.
There was a consensus that India is on a strong long-term wicket, and equally that we must all be prepared for short and medium term volatility (or risk). Nobody wanted to openly bad-mouth the government, so everybody agreed that reform was independent of political changes… and therefore inevitable. Others voiced the usual concerns are infrastructure, governance, “inclusive growth” and such like.
So what’s new, you might ask?
I did ask this too, as caffeine battled sleep deprivation and boredom.
Till we got to a session on “Investing in Real Estate”. Of the four panelists, only one guy showed up – Ritesh Vohra of Saffron Asset Advisors. But he made up for the rest, with a very persuasive argument about why real estate prices in urban India (especially Delhi and Mumbai) are due for a correction. I won’t go into the entire argument, but one point caught my attention.
Large chunks of developer debt held by banks was “re-structured” in 2008-09 as part of the stimulus package. This gave the builders holding power and has resulted in tightening of prices to the consumer. Given inflation and deficit concerns, coupled with the fact that RBI is generally conservative when it comes to real estate, he suggested that these loans would not be rolled over too much longer. Barring a few large listed companies that have managed to secure alternative funding, most developers will get squeezed and be forced to sell inventory for cash flow – thereby bringing down prices.
I’m not too knowledgeable about the quantum of bank funding to real estate, and how much was restructured. However, his “contrarian” argument amidst the unalloyed optimism, was a pleasant change.
The other point of interest was a conversation over cocktails (always the most valuable inputs!), where a Swiss banker repeatedly wondered why we (India) didn’t finance infrastructure and corporate investment with bonds. His contention was that Indian government or corporate bonds will be a big hit in the international markets. This is provided they’re listed overseas, given our non-existent secondary bond market. He thought we were limiting our growth by being over-cautious.
Again, I’m not qualified to ratify (or not) his opinion. But a statement he made stuck with me. “Nobody wants to buy Greek bonds! But give them Indian bonds, and there will be a mad rush.”