Real estate investment trusts will make a debut in India

Real estate investment trusts will make a debut in India, a full five years after they were permitted by SEBI. India’s first REIT will open for subscription on 18th March to raise Rs.4750 crore. The REIT will be jointly sponsored and handled by the Embassy group of Mumbai and Blackstone of the US. REITs are like mutual funds with the difference being that they hold a portfolio of real estate assets and issue pass-through securities. REITs were permitted by SEBI in 2014 but this is the first REITs IPO in the market at a price of Rs.300. The proceeds will be used to pay the debt and monetize the realty assets of the group.

Now the RBI has a new way to infuse liquidity into the currency and money markets in India. The RBI will use forex swaps to infuse liquidity into the Indian markets. These forex swaps are a tool used to swap dollar inflows with rupee funds. A total swap auction of $5 billion for a tenor of 3 years is currently being considered by the RBI. These long term swaps are useful in the sense that they give the financial markets a clear idea of the quantum of RBI infusion over a period of time. In times of rupee flows, these dollar swaps can be enhanced to absorb to curb the flow of excess dollars via the FPI route.

There is a new crisis of grounded planes afflicting Indian airlines and that could actually push up airfares in India. In the last few weeks, scores of aircraft have been grounded and flights canceled. The reasons include cash crunch, shortage of pilots, engine troubles with Pratt & Whitney and more recently the risks of flying the Boeing 737 Max. With the DGCA calling for a halt to flying Boeing 737s, aviation experts are expecting airfares to go up by nearly 20% in the short to medium term. Ironically, this crisis could come as a boon for aviation companies struggling with negative spreads in operations.

Nifty and Sensex continued upward journey despite BREXIT worries for the third day this week. The global markets, including China, were worried about the BREXIT but Indian markets showed little signs of relenting. The sharp surge in FII flows has been one of the key reasons for the sharp rally in the market. However, the A/D ratio was in the negative region on Wednesday at 20:30 indicating that the rally was tiring at higher levels. Banks and financials ruled the roost in markets. The Sensex has already rallied over 1100 points in just 3 trading sessions even as Nifty is approaching new highs.

The next few days could be critical for the price of Brent Crude. In fact, on Wednesday Brent Crude shoots up by 151 bps to $67.68/bbl on supply worries. The sharp rise in the price of crude oil on Wednesday was largely driven by lower supply pledge from the OPEC and continued Venezuelan sanctions. The US also announced that the 1.5 million bpd of forced supply cut by Iran had resulted in Iran losing $10 billion due to sanctions. It is estimated by oil traders that if the trade deal gets through, then oil could make a rush toward the $70/bbl mark. A lot will depend on what happens to the trade deal between the US and China. A speedy deal will let both the economies get back to normal growth momentum and the impact on global growth will be minimal. Oil demand will be a big beneficiary.

All seems to be ok with the Indian rupee value. Indian Rupee ended stronger at 69.54/$, the best closing of the year 2019. This marks the continuous and gradual strengthening of the rupee over the last 2 weeks from a level of around 71.20/$. The surge in the rupee was led by positive cues from the foreign institutional investors. This close represents the strongest close for the rupee since January 01st. Hopes of lower trade deficit and lower current account deficit are also keeping the rupee buoyant. Apart from FPIs, exporters have been also bringing in their export proceeds quickly into India as fiscal ends.

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