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.”

Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter. Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA. LinkedIn Profile

  • ms. rama karupaiah
    Posted at 15:10h, 04 March Reply

    further to my comment:

    today’s et frontpage article: fii funding of real estate through the backdoor renders real estate deals more opaque. i guess vested interests are opposing any withdrawal of liquidity. wish rbi would crack down on this. if not the middle class will continue to suffer from unreasonable real estate prices. that’s what has been happening in the west. in the name of economic stimulus, land has become artificially inflated and people are bonded to banks over a major part of their lives.

  • admin
    Posted at 17:07h, 03 March Reply

    Thanks for your comments, Rama.
    Yes, there is too much liquidity and not enough sane assessment of risk.

  • ms. rama karupaiah
    Posted at 13:04h, 03 March Reply

    i believe real estate is in a bubble which has not deflated because the liquidity plug has not been pulled for various reasons, such as:

    1. rbi’s support because of the govt’s arm twisting
    2. foreign inflows (nris as well as round tripping)

    added to this you have ‘stubborn factors’ like landowners’ raised expectations, unscrupulous dealings of the broker community, non transparent govt policy on land use, building regulation. my bet is that there will be a shakedown only if the world economy experiences a severe shock (maybe in the latter half of 2010?).
    otherwise there will be stagnation in pockets such as commercial real estate and an irregular pick up in residential segment.

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