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CA Meet - Jaipur December 13, 2014. 2 Global economic environment Key regulatory developments Performance review.

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Presentation on theme: "CA Meet - Jaipur December 13, 2014. 2 Global economic environment Key regulatory developments Performance review."— Presentation transcript:

1 CA Meet - Jaipur December 13, 2014

2 2 Global economic environment Key regulatory developments Performance review

3 3 Global economy: growth remains uneven GDP growth at 3.9% in Q3-CY2014 1 (CY2013: 2.2%) Update on QE End to monthly bond purchases by the Fed Fed will continue to reinvest proceeds Low interest rates for “considerable period” indicated Growth remains muted with large economies facing challenges Deflation concerns persist; ECB reduced interest rates in Jun & Sep 2014 US Eurozone China 1.Based on seasonally adjusted annualized quarterly GDP growth Moderation in GDP growth to 7.3% y-o-y in Q3- CY2014 (>9.0% levels in 2011 & 2012)

4 4 Global monetary policy Fed ends quantitative easing However, interest rates likely to remain low for considerable period Interest rates continue to remain at very low levels Long term refinancing operations to continue till June 2016 US Eurozone Japan Persistent deflationary conditions; QE increased from ¥60 trillion - ¥70 trillion to about ¥80 trillion each year US Accommodative global monetary policy likely to continue

5 Key global developments to monitor 5 Trends in global growth; developments in Euro area Timing of rate increases by the US Federal Reserve Growth trends in China Geopolitical developments

6 6 India: long term growth potential Key regulatory developments Performance review

7 India: strong long term growth fundamentals 7 Favourable demographics Healthy savings & investment rates Rising per capita income Rural India-high growth potential Key drivers of growth High potential for infrastructure development to support economic growth in the long term

8 Rising share of working age population Addition of around 12 million to the workforce every year for next five years Working age population to exceed 50% of total population in 2025 A young population with median age of 25 years Dependency ratios to remain low till 2040 840 1,053 1,432 1,501 840 1,053 1,432 1,501 8 Favourable demographic profile

9 Investments driven primarily by domestic savings 9 Healthy savings & investment rate FY2003 FY2013 ~25% ~35% Investment rate FY2008 ~38% FY2003 FY2013 ~25% ~30% Savings rate FY2008 ~37%

10 Per Capita GDP (USD) Rising per capita GDP accelerating domestic demand 840 1,053 1,432 1,501 ~2x 2005 2013 7 749 1,509 10 Source: IMF Strong domestic demand

11 11 Source: MOSPI Revival in consumption growth… Private consumption expenditure (PCE) growth was below long-term average of 7.2% YoY; moderate pickup seen in H1-2015

12 12 Source: CEIC Historically, passenger vehicle (PV) sales are seen to track PCE growth, albeit with a lag Domestic car sales grew by 9.5% in November 2014 driven by lower fuel prices and continued relief in excise duty Historically, passenger vehicle (PV) sales are seen to track PCE growth, albeit with a lag Domestic car sales grew by 9.5% in November 2014 driven by lower fuel prices and continued relief in excise duty...likely to drive passenger vehicle sales

13 13 Trends for rural India Over 700 mn people spread across 600,000 villages Share of industry and services in rural economic growth now higher Over 700 mn people spread across 600,000 villages Share of industry and services in rural economic growth now higher

14 14 Source: MOSPI Monthly per capita expenditure INRCAGR growth (%) RuralUrbanRuralUrban 2011 - 121,4302,63016.515.1 2009 - 101,0531,98513.5 2004 - 055591,0522.84.2 1999 - 004868559.210.7 1993 - 94286464 Rural demand to be a growth lever Estimates of the consumer expenditure survey conducted by NSSO for 2011-12 show that growth in monthly per capita expenditure in rural India has exceeded that in urban India for the first time since economic reforms began in early 1990s

15 15 India: recent developments Key regulatory developments Performance review

16 16 India: structural concerns being addressed High level of fiscal deficit and domestic current account deficit Persistent high levels of inflation Market volatility; sharp movement in exchange rate Reduction in fiscal deficit from 5.7% in FY2012 to 4.6% in FY2014 Current account deficit has narrowed significantly from 4.8% in FY2013 to 2.1% in Q2-2015 CPI inflation has moderated from an average of 9.5% in FY2014 to 5.5% in Oct 2014 Improvement in capital flows Recent developments Earlier concerns

17 17 Continued optimism due to strong election mandate S&P raised outlook for India from ‘negative’ to ‘stable Several agencies have revised India’s growth forecasts upwards in the range of 5.5%-6.0% for FY2015

18 18 Measures by the Government Land acquisition reforms Labour reforms Introduction of goods and services tax (GST) Liberalisation of insurance sector Land acquisition reforms Labour reforms Introduction of goods and services tax (GST) Liberalisation of insurance sector Other reforms being considered Complete deregulation of diesel prices Ordinance relating to coal block de- allocation Approval of new domestic gas pricing policy Gas pricing to be reviewed every six months beginning April 1, 2015 Launch of ‘Make in India’ campaign Complete deregulation of diesel prices Ordinance relating to coal block de- allocation Approval of new domestic gas pricing policy Gas pricing to be reviewed every six months beginning April 1, 2015 Launch of ‘Make in India’ campaign Recent actions

19 19 India: economic outlook GDP growth in the range of 5.5%-6.0% for FY2015 March-2016 CPI inflation at 6.0%-6.5% Anticipation of rate cut by RBI in early 2015

20 20 In summary Retail sector expected to benefit from improved macro economic outlook and policy initiatives Improvement in growth outlook for the Indian economy

21 21 India: Growth gathering momentum Source: MOSPI, ICICI Bank Research FY2015: 5.5-5.7% target; further acceleration expected over the next few years

22 22 RBI has maintained a pause on rates Source: RBI, ICICI Bank Research RBI has maintained pause on policy rates since January-2014

23 23 Real estate sector

24 24 Source: MOSPI, ICICI Bank Research Real estate & construction account for ~12% of GDP

25 25 Source: NCAER, ICICI Bank Research Residential and non-residential construction have high interlinkages with other sectors “output multiplier” refers to change in total output in economy in response to rise in 1 unit of exogenous demand for a sector’s output ** construction includes residential, non-residential and other construction *** excluding railways Construction sector has strong inter-sectoral linkages leading to a high employment generation potential. For instance, the employment multiplier for residential construction sector is ~3

26 26 Source: RBI, ICICI Bank Research Growth in house prices has come off The growth in house prices has slowed down to catch up with the erstwhile fall in GDP growth trajectory

27 27 Source: HDFC, ICICI Bank Research Overall affordability has remained static Affordability of property by households has remained largely static over the last few years Affordability calculated as the ratio of property value to annual income

28 28 Flow of funds into the real-estate sector

29 29 Source: MOSPI, ICICI Bank Research Share of physical savings in total savings has risen While overall household savings have declined since FY2011, the share of physical savings (which includes real-estate) has increased Financial savings (as % of GDP) remained static at ~7.0% even in FY2014

30 30 Source: NCAER, ICICI Bank Research Property a predominant investment avenue for households According to an RBI-NCAER survey*, investment in property has taken priority over gold, deposits and equities for an average urban household * The study was conducted in 2011

31 31 Source: National Housing Bank (NHB), ICICI Bank Research Credit-penetration in the sector remains very low India’s mortgage-debt to GDP ratio at 9% is one of the lowest in the world, suggesting scope for further penetration Access to formal credit in India remains limited

32 32 ^ defined as townships, housing and built-up infrastructure Source: DIPP, MOSPI, ICICI Bank Research FDI inflows into the sector have declined recently Share of construction development in FDI equity inflows has been declining

33 33 Policy initiatives to support the sector in this context In the FY2015 Union Budget, the Government announced a number of initiatives to support the sector INR 70.6 bn allotted for 100 smart cities INR 80 bn allocated for rural housing schemes Relaxations made in FDI in realty Tax incentives given on home loans Necessary incentives and a conducive tax regime for REITs Banks permitted to issue bonds in order to finance long- term credit to infrastructure and affordable housing segments

34 34 Real Estate in Jaipur

35 35 Executive Summary Jaipur is expected to become a mega city by 2025 with a population of 10 million people covering an area of about 800 sq km. Jaipur residential real estate market is driven by a 60:40 mix of investors and end users respectively. Maximum supply and absorption in the Jaipur market falls in the price bracket of INR 3,000 – 3,500/sqft. Most preferred configuration in terms new launches and absorption for the residential units has been the 3-BHK segment.

36 Infrastructure Growth l Metro Rail Network One of the biggest growth stimulators for Jaipur reality market Once operational, rates of residential property on and near the metro route are expected to flare up l Bus Rapid Transit Service (BRTS) Proposed to cater to city's growing traffic needs "North-South Corridor" from Sikar Road to Tonk Road, and an "East- West Corridor" from Ajmer Road to Delhi Road l Ring Road The proposed Ring Road project will be an arterial road connecting the major areas of Jaipur together The Expressway will have investment zones for commercial as well as residential development on both the sides

37 Delhi Mumbai Industrial Corridor (DMIC) A band of 150 km on both sides of the DFC has been chosen to be developed DMIC Nearly 39% of DFC passing through Rajasthan; plenty of opportunities for industrial establishment About 60% of the State's area (locations like Jaipur, Alwar, Kota and Bhilwara) fall within the project influence area of DMIC.

38 Infrastructure Growth Contd.. l Dedicated Freight Corridor (DFC) running through Jaipur Rail corridor connecting Jawaharlal Nehru Port near Mumbai to Dadri near Delhi Will allow high-speed connectivity for high axle load wagons (25 tonnes) of double stacked container trains l Other Infrastructural Developments to boost demand of housing Knowledge cities: The Knowledge City North- near Chaup village. Knowledge City South, will come up near the satellite town of Phagi Science-Tech City: Near Achrol on the Jaipur-Delhi highway. The location is opportune for investments in the higher education sector Several healthcare projects : like Reliance Medicity and Bombay Hospital will promote medical tourism and employment

39 39 Inventory Levels static at 12k – 14k Source: PropEquity, ICICI Property Services Group. Sales Trends QoQ

40 40 *Source: PropEquity, ICICI Property Services Group Note: Residential data for 2014 (from Jan-2014 to August-2014) Top Micro Markets in Jaipur (based on sales)

41 Micro markets in Jaipur l The investors are willing to invest in the areas developing along the ‘spokes’ around the center of Jaipur. Following are the top 10 micro markets in Jaipur. l Ajmer Road Attracting investors from Delhi NCR and witnessing the development of integrated townships The occupancy rates are currently around 30% l Patrakar Colony Close to Mansarovar colony & Mansarovar Metro station Situated around 8 kms from the airport The ticket size lies in the range of 20-80 lacs l Tonk Road Builders are betting big on this area due to its proximity to Pratap Nagar The second most active micro-market in terms of absorption with 312 units being absorbed in the first 7 months of 2014

42 Micro markets in Jaipur l Mahindra World City Joint venture by Mahindra & Mahindra with RIICO, the Mahindra City, spreads across 3,000-acres Divided into two zones- one zone being the IT zone and the other zone being dedicated to Export industries like Gem stones, handicrafts etc. Located on NH-8 and well connected to the Kandla Port in Gujarat Jaipur master plan has planned to develop the social and residential infrastructure such as housing facilities, healthcare facilities, educational institutions, etc. for a holistic living environment l The Jagatpura micro-market 25 residential projects coming up in this area Located around 6 kms from Malviya Nagar The ticket size of in this area lies in the range of 30-40 Lacs

43 Micro markets in Jaipur Continued l Vaishali Nagar Offers a healthy mix of residential, retail and commercial development Low-rise floors as well as bigger projects by renowned local developers Residential units in this region are priced in the range of INR 3,000 - 6,000/sq ft l Sikar Road An industrial belt that witnesses some residential projects by local developers. It is located along the Delhi Bypass connecting the heart of Jaipur to the Vishwakarma Industrial Area Close to Vidyadhar Nagar and its good connectivity through the Bus Rapid Transit Service (BRTS) system. This micro-market has the average ticket size (2 BHK) falling in the range of 30 – 35 Lacs.

44 Micro markets in Jaipur Continued l Kalwar Road The proposed Jaipur- Jodhpur mega highway project is expected to bring more traction and focus to this area The residential projects are priced in the range of INR 2500 - 3300 / sq ft l Durgapura Is densely populated residential area,having one of the best proximity and connectivity to the major commercial/retail hubs of Jaipur Lies along the Tonk Road with the airport only a kilometer away and Durgapur Railway Station lying within the area l Sanganer Jaipur is served by an International Airport, which is situated in its satellite town of Sanganer, at a distance of 10 km from city center and offers sporadic service to major Domestic and International locations. The economic development is fuelled by proximity to airport

45 45 Key conclusions India’s growth trajectory is on an upturn Interest rates could be supportive if inflation eases Real estate sector a critical driver of the growth story Stability in Rupee to support India’s recovery

46 Largest private sector bank in India #1 Largest branch network among private sector banks supplemented with large ATM network N/W Over 25 million customer accounts Strong capital base with CAR of 17.41% with Tier 1 ratio of 12.75% at September 30, 2014 ICICI Bank Overview Overview Among Top 60 banks in the world by market cap Global presence in 18 countries

47 Retail deposit account for 70% of total domestic deposit CASA ratio at 43.7% at September 30, 2014 1.75 mn New customer accounts opened at September 30, 2014 Larger Pre-qualified customer base, across all lending products. Retail deposit account for 70% of total domestic deposit CASA ratio at 43.7% at September 30, 2014 1.75 mn New customer accounts opened at September 30, 2014 Larger Pre-qualified customer base, across all lending products. A strong Retail base.. Total Customers> 25 mn NRI customers> 1 mn HNI customers> 0.40 mn Salary Customers> 11 mn Branches3,815 ATMs11,739 Employees> 65,000 Serviced through… Mobile Banking 2.5 mn Internet Banking 5.2 mn Retail Distribution Distribution

48 Key initiatives during recent years Technology Tab banking Mobile banking: next generation apps across domains 24x7 touch banking: facilitating day-to- day transactions Comprehensive solutions: online tendering, electronic toll collection Leveraging social networking platforms Redesigned & customized website Supporting customer service & cost efficiency Leveraging mobility, digitisation and innovations in payments technology

49 Tab Banking for hassle free account opening TAB Banking Tab Banking 25000 Tabs across India led to 25000 additional touch points Seamless integration with auto loans will ensur faster turnaround time and conversion. Field Investigation and Valuation in Auto Loans through TAB About 35-40% of the savings accounts opened every month are sourced using tab banking 25000 Tabs across India led to 25000 additional touch points Seamless integration with auto loans will ensur faster turnaround time and conversion. Field Investigation and Valuation in Auto Loans through TAB About 35-40% of the savings accounts opened every month are sourced using tab banking

50 Thank you 50

51 51 Fiscal consolidation Government committed to fiscal deficit target of 3% of GDP by FY2017 Source: Budget documents Fiscal deficit (% of GDP)

52 52 Declining current account deficit Source: CEIC Current account balance (% of GDP) Sharp reduction in gold imports from USD 54.0 billion in FY2013 and USD 33.0 billion in FY2014 to USD 18.8 billion in FY2015

53 53 Inflation and monetary policy stance Favourable impact of base effect and food prices resulted in moderation in CPI inflation to 5.5% in October 2014 compared to 7.5% in June 2014 However, base effect would result in some normalisation post January 2015 WPI inflation at < 2.0% in October 2014 Focus has shifted to objective of 6.0% CPI inflation by January 2016 RBI has mentioned that if the current inflation momentum & changes in inflationary expectations continue & fiscal developments are encouraging, a change in the monetary policy stance is likely early next year

54 Outlook on inflation 54 Source: CEIC, Bloomberg, ICICI Bank Research Crude price dropped from USD 107/ bbl in June 2014 to ~USD 71/ bbl in end-Nov 2014 Drop in international crude prices is expected to positively impact inflation, fiscal position and current account deficit Consumer price inflation

55 Things that matter in investing… ValuationSentimentsTriggersCycle


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