Friday, November 27, 2009

Reality check on Real Estate prices

The realtors are trying very hard to convince the buyers that real estate market has revived. But they are creating their own nemesis by increasing the prices too fast too soon in the past few months, whereas the ground reality points to a supply demand mismatch. Most of the real estate firms are looking for short term gains at the cost of long term growth of the real estate market, by raising the prices at this juncture. The idea of affordable housing is being missed out by these firms.What has happened in Dubai yesterday, may also have a negative impact on the real estate market in india in the near term.

Interest rates do serve as a dampner for growth of real estate market, but high prices are a bigger threat. Wheras, the current lower interest rates scenario for housing finance should have been used by real estate firms to sell their inventory at affordable prices. Dropping sales post September 2009, are a cause of concern for the growth of real estate market. According to a research report the inventory to sales ratio which was at a comfortable level of 2:1 in 2005 has gone up drastically to 12:1 in november 2008. This does not auger well for the orderly growth of the market. The operators are jacking up the prices of projects to improve the valuations of real estate firms, many of whom are slated to raise funds through QIP's and IPO's.

The absence of a real estate index has hampered the orderly growth of the real estate market. NHB's Residex launched in 2007 which presently covers 15 cities, is yet to establish itself as a barometer for determining supply and demand of real estate. Ideally, a rental value in excess of 4% p.a. of the price of the property should act as the benchmark. If people are demanding more than this, we might be moving into the bubble zone. Investors are advised to evaluate all factors before investing in real estate, seek bargains from the sellers to take advantage of the buyer seller mismatch. Better still, it would be advisable to wait for a realistic correction to set in, especially if you are buying a second property for the sake of investment.




Friday, November 20, 2009

India's Top Brands

Marketing guru Peter Drucker once said "Marketing and Innovation produce business results all the rest are costs". Over the years 'Brand value' has acquired a lot of significance, as it helps distinguish great companies from the ordinary. A brand is defined as a name or trademark connected with a product or producer. There are two aspects of a brand: Experiential and Psychological. The experiential aspect consists of the sum of all points of contact with the brand and is known as the brand experience. The psychological aspect, also referred to as the brand image, is a symbolic image created within the minds of people and consists of all the information and expectations associated with a product or service. Creative brand management supported by an innovative advertisement campaign helps the company products/services command a premium in the market. This has lead to brands being given a notional value which forms a part of the intangible assets of the company in its balance sheet.


The recently released edition of India's Most Valuable Brands 2009 (IMVB) study puts Reliance Industries (RIL) at the top, followed by state owned State Bank of India (SBI) and Indian Oil Corporation (IOC) in the 2nd and 3rd place respectively. The study conducted by London based brand valuation firm 'Brand Finance' in association with the Economic Times throws up some interesting facts:

  • The study has included companies listed on BSE, and has not considered holding companies, hence some important names like Hindustan Unilever Ltd. (HUL) and AMUL have been omitted.
  • The valuation is based on 'Relief from Royalty' approach, which assumes that the company currently does not own the brand and how much it would need to pay to license it from a third party.
  • The sectoral break up top 50 most valuable brands is: Banks/ Financial institutions (9), Auto/ Auto anciliary (7), Oil & Gas (5), IT (4), Communication (4), FMCG/ Retail (5), Infrastructure (4), Steel Makers (2), Pharma (2), Others (8).
  • Despite recession, the brand value of top 50 Indian companies has remained constant at US $67 billion.
  • There are 19 companies with a brand value in excess of US$ 1 billion.
  • The top 3 companies have brand values of: RIL (US$ 7.8 bn.), SBI (US$ 5.5 bn.), IOC (US$ 4.2 bn.). Brand value of RIL grew by 15% and that of SBI by 30% during the year.
  • The biggest gainer is Tata Power (84%) and the biggest loser is Jet Airways (-56%).
  • The strongest brand in terms of rating turns out to be Bharti Airtel (overall ranking 7th) with a AAA rating. RIL & SBI have been rated AA+.



Friday, November 13, 2009

World Economy out of Recession: Is it a time to rejoice!

Warren Buffet, the legendary investor of our times, has declared that the worst ever financial crises that gripped the world markets last year is behind us. And he has enough reasons to beleive so. US economy has shown positive growth in the 3rd quarter of this year, after four consecutive quarters of negative growth. The Eurozone has also come out of recession in the 3rd quarter, the 16 nations comprising the Eurozone reported a combined GDP growth of 0.4%. However, a sliding US Dollar poses a serious threat to the Eurozone recovery (The dollar has slipped 18% against the Euro in the last quarter). It is not a time to rejoice yet as the recovery is mainly on account of the support from Govt. stimulus packages and temporary inventory effects.

However, CHINDIA (China and India), continue to lead the global economic revival.  As per the current IMF forecasts for global economic growth, China and India together would account for 14.5% of the world’s GDP by 2014 at market exchange rates and 21% in PPP terms. Their current share is around 9% of world's GDP. The 3rd quarter GDP growth for China has been an impressive 8.9%. In October '09 China's manufacturing index recorded the highest growth in last 18 months. India's IIP growth at 9.1% for September '09 has been better than the analysts' expectation. India is on course to record a GDP growth of 6.5-7% for this fiscal. The Govt. is seriously devising measures to reign in the widening fiscal deficit. One such measure is to spend money raised from PSU divestment to create assets for the social sector.

These positive developments have lead to a strong revival in global equity markets. The risk appetite of investors has improved due to the positive announcements. Although ahead of fundamentals, the markets are reflecting the positive sentiments expressed by investors like Warren Buffet. From now on, any dip in the markets will be an opportunity to add equity investments to one's portfolio.