I was reading an article the other day from Agora Financial about the $200 billion dollar opportunity represented by India's retail sector opening up. The article stated some straightforward facts- the steps leading to the relaxation of this critical sector, how ripe the pickings were when China opened up its retail market in 1992, how much bigger this opportunity is going to be, and so on. The article urged its readers to invest in local Indian companies that would be the beneficiaries of this boom- such as cement and steel companies that would help build the retail stores of Walmart and so on. You can access this here.
Add to that the news about skyrocketing real estate prices in Indian cities. As far back as I can remember the real estate prices have grown far more rapidly in India than in the US, with a few corrections- 2 in the last 15 years that I can remember. Yet these were not corrections of the order that we dread today in the US with long term ramifications that will deflate a bubble that has been years in the making. Sure enough the prices went back up soon enough. Today the market is white hot so that one fears which parts of it may be bubbles. Apartments for instance have risen in prices in most major cities that may not justify a good resale value. But land- with no attachments- is still a good long term bet, I would affirm.
In the smaller towns the suburban land prices have risen over 100 percent in 2 years. The growth seems to show no signs of abating, even with the sharp rise of the Rupee, a sign that the demand for land is fuelled not only from outside India but from within the domestic market as well. Plus, investor confidence in the market is high among non-residents too. Merril Lynch forecasted in 2005 that the organized realty sector in India will grow from $12 billion then to $90 billion in 2015. Already this sector is heating up with major foreign funds moving in. $10 billion of foreign investment is earmarked for this year already from these global funds, of which there are 35 operational in India and 20 more waiting in the wings this year.
So it may not be simply the manufacturing industry that will benefit from the retail boom (which is nothing short of an avalanche in itself). But instead of focusing on Walmart stocks or even the cement and steel companies, why not look at real estate funds? The big ticket acquisitions are on a roll. This article from the Financial Express gives an idea of the specific funds which are making the big deals in India.
Just how much real estate expansion could be attributed to retail? This Business Standard article says there’ll be 220 million square feet of organised retail space in India by 2010. Do the math! Another article here says India’s retail sector needs more than 500 million square feet of retail space, but all of the malls now being built or planned total less than 150 million square feet...