Indian real estate is back from the dead!
Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you the headline; we will dive a little deeper into the story to give you more context.
We do this show in both formats: video and audio. This piece curates the stories that we talk about. And, this is our first issue.
You can check out the video here:
And the audio is here: Spotify and Apple Podcast
Today, we look at 4 big stories:
Why aren’t Indian companies investing?
After a decade of underperformance, both residential and commercial real estate are booming.
Shein gets a new lease of life with Reliance partnership.
Exchange-traded currency derivative volumes are down by 90% after RBI’s guidelines
Why aren’t Indian companies investing?
This is how an economy runs: Someone thinks hard about something the world needs, talks to people, gathers resources, and constructs a factory. It’s a big bet, which might or might not pay off. The construction takes two-three years and costs crores of rupees. All this money goes to suppliers, contractors, and construction workers, who start spending it in the economy themselves. Once a factory is constructed, every month, the owner pays workers and suppliers. People spend all this money, and it’s back in the economy.
With all this money up for grabs, others start taking their bets. Someone sets up a business to provide raw materials to the factory. Someone builds an apartment complex near the factory. All of them spread more money around the economy and repeat this cycle.
Over time, a neat little business ecosystem develops because of the initial investment.
That is why investment is at the heart of an economy. A good investment doesn’t just add to a country’s GDP once. Its effects are felt again and again, and they multiply throughout the entire economy.
In the first quarter of this year, private investment announcements in India hit a 20-year low at Rs. 44,300 crore, a staggering 96% drop from the previous quarter's Rs. 12.35 lakh crore. This sharp decline in private investment is alarming, given its critical role in economic growth and development.
Potential Reasons for Decline
CMIE data might be questionable, but the trend indicates a problem.
Investors may have delayed decisions due to the Lok Sabha elections, but historically, election periods still saw higher investment levels.
Banks and NBFCs are hesitant to lend due to financial stress and a $300 billion funding deficit.
Frequent government policy changes create an uncertain business environment.
Low consumer spending and a 'silent income crisis' make India a less attractive market.
After a decade of underperformance, both residential and commercial real estate are booming.
The Indian real estate market is experiencing a resurgence after a decade of sluggish growth. Knight Frank published a report for the first half of 2024 looking at the trends in residential and commercial real estate in 8 major markets. Here are some highlights:
Residential Real Estate Market
Sales volumes have grown by 29% since 2020, hitting a 10-year high in 2023 and an 11-year high in the first half (H1) of 2024, with an 11% year-on-year increase.
There’s a shift towards premium properties. Houses priced above Rs 1 crore make up 41% of sales, growing by 51% YoY in the first half of 2024.
Sales in the Rs 50 lakh to 1 crore and below Rs 50 lakh categories dropped by 8% and 6% YoY, respectively. This points to economic distress among these segments of the population.
Overall inventories of unsold houses grew by 3% YoY, with a 27% increase in the Rs 1 crore+ category. However, sales velocity remains strong so high inventories are not a cause of concern.
Commercial Real Estate Market
Commercial real estate sales volumes hit record highs in 2023 and continued strong in H1 2024, registering a 33% growth in transactions, the highest ever for a half-year period.
Leasing by Indian Businesses increased by 35% in H1 2023 and 41% in H1 2024, showing strong expansion.
Foreign companies leased 48% more space in H1 2024.
New commercial project completions are subdued, leading to low inventories and rising rents in key markets.
Shein gets a new lease of life with Reliance partnership.
Reliance is giving Shein a new lease of life. Shein was banned in India in 2020, but by partnering with Reliance, it now has an indirect presence in India. Reliance has entered into a licensing agreement with Shein to sell its products in India.
Background and Ban
Shein was banned by India amid geopolitical tensions with China.
Founded in 2008, Shein became popular for its ultra-cheap, trendy clothing at ridiculously low prices for as little as $4–$10 (Rs 400–800).
Business Model
Shein uses big data to quickly adapt to fashion trends, connecting design to delivery through its internal software.
Despite being banned in India, Shein grew rapidly globally. It’s big enough to challenge Amazon.
In 2023, Shein sold $45 billion worth of goods, making a $2 billion profit.
Reliance Partnership
Reliance licenses Shein’s brands and designs, with Shein manufacturing in India and storing data locally.
Reliance will sell Shein products through its app and 18,000+ stores, while Shein receives a license fee based on profits.
This move positions Reliance against Tata Group’s Trent and its fast fashion brand Zudio.
Exchange-traded currency derivative volumes are down by 90% after RBI’s guidelines
In April 2024, the Reserve Bank of India (RBI) issued a circular that killed exchange-traded currency derivatives. The circular mandated that only those with direct exposure to the underlying currency, such as the Rupee and Dollar, can trade these derivatives. This was done to curb rampant speculation in the market and align trading activities with the original intent of derivatives—hedging risks.
Key Changes and Impact
As per the new guidelines, only those with direct exposure to the underlying currency can trade currency derivatives.
Trading volumes in currency derivatives plummeted by over 90% following the circular.
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