Five experts on what the new decade starting next week holds for investors

The 2010-19 decade has delivered dismal returns for investors across asset classes. Will the next ten years be any better? Four top experts give views on their respective sectors

The start of decade – 2010 – was rather slow. After all, the world was coming out from a serious financial crisis, which saw the fall of Lehman Brothers. India faced high consumer price inflation in the first few years of the decade, hurting investor returns dramatically. As the new decade is about to start, investors are staring at another global crisis – the US-China trade war. However, Indian investors are facing a myriad of domestic challenges too – a slowing economy, crisis of confidence in the non-banking financial sector, mess in the real estate sector, falling job growth and others. Four sector experts give their view on equity, debt, gold and real estate.    

Return of capital-intensive sectors: S Naren, executive director and CIO, ICICI Prudential Mutual Fund

Over the last decade, if there is one theme that defined the market then it would unequivocally be consumption and consumption-related themes. Among the sectoral indices, consumer durables and FMCG were the top index gainers, gaining 21 per cent and 15 per cent per annum. Meanwhile, in the same time frame retail banks multiplied by over six times, creating wealth for its investors.

However, the next decade seems poised to see a return of capital expenditure intensive sectors such as metals, power and telecom to name a few. Each of these sectors has been laggards over the past decade, with its respective sectoral indices in red ranging from 1.5 per cent to 5 per cent.

Further, private capex which has been lagging for some time is likely to some traction in the years ahead, as the demand in the economy revives. As a result, we believe over the next five years capital good companies which are capex heavy and have a sound balance sheet is likely to gain.

Incidentally, in 2007 investors were to the belief that roads were a requirement and cars were not essential. That era today is known as the infrastructure boom days. Currently, investors believe that cars are a requirement but roads are not, which again may prove to be a folly in the days ahead.

As an investor, it is important to remember that the current rally is very narrow in nature. The Indian economy and the resultant market is more than the top 10 companies which currently seems to be shouldering the up-move. Historically, it has been seen that with time such concentrated rally moves to become broad based in a gradual manner. So, it is essential for investors to look beyond the overpriced quality names and over a period shift to value oriented names.

In for a rollicking ride: Anshul Jain, Country head and MD, Cushman and Wakefield

With 2019 winding down, we are the end of a rather eventful decade for the Indian real estate markets. What has been interesting that among the conventional asset classes, is that all have undergone a massive transformation, but the fortunes of each could not have been vastly different than at present.

In the decade that went by, the Indian office markets were just coming out of the post-GFC slump with 2010 being the year when the commercial office sector finally reversed itself and put itself on a slow yet steady growth path. Through this decade, the office sector has gained renewed momentum to reach here when 2019 is the biggest year yet in terms of supply and space take-up with leasing activity slated to cross the 60 mn sf mark. And the momentum doesn’t look like slowing down the next year as well.

The residential sector on the other hand was the panacea for the real estate sector in the post-GFC period. With commercial developers making a beeline for the residential sector, 2010 marked big rise in the pan-India residential launch activity with the year recording the highest annual launches in the decade with close to 300,000 units, across the top eight cities. With associated investor activity in residential as well as the demand for housing picking steam, the sales momentum also reached a peak in 2010 as well. Throughout this period, between 2010 and 2015, launches consistently outstripped the sales in the residential sector causing a rise in the inventory overhang.

Combined with the rising consumer activism in the wake of project delays, unfulfilled promises regarding project quality and a general breakdown of trust between the developer-buyer community, the last half of the year has been one of struggles for this asset class.

The spate of regulatory changes in the form of demonetisation, RERA and GST made 2016-2017 as the watershed year for the residential sector. In 2017, launches fell to a low of just around 100,000 units with the associated sales dropping to below the 100,000 units point for the first time in the decade. 2018 and 2019 have turned out to be years when the fortunes of this sector showed some improvement across the key metrics of sales and launches as the structural reforms and government support started bearing some positive results.

Throwing the ongoing NBFC crisis in the mix, the situation remains a concern with a sustained revival in the residential segment necessary for the health of the overall real estate sector.

In the upcoming decade, we expect that while the sector shall improve its performance given the strong reform push with all such reforms like the RERA and IBC achieving optimal efficacy, the next decade shall also be marked by the tech revolution and the changing business dynamics. With India destined to move up the World Bank’s Ease of Doing Business rankings over the next decade, we expect that transparency and agility fostered by structural reforms shall be key to improving the flow of private, institutional capital to the residential sector in particular. Innovation in product offerings shall create separate sub-asset classes within the residential sector, with affordable housing being a prime example. Rental housing shall gain a strong foothold with a focus on build-to-rent models and the focus on alternative models like co-living and student housing.

Technology-driven homes and construction methods shall drive project-level innovation around themes of sustainability, while price movement will be in sync with buyer expectations creating feasible price discovery models. We definitely expect that sales activity, being the barometer for sector sentiment, shall pick up steam even as consolidation plays out in the form of financially sound, serious developers remaining in the fray. Evolving business models structured around sales of completed assets shall gain further momentum with institutional players increasingly likely to adopt them.

Affordability remains a key point and the government level support and interventions shall surely give a positive push to this. The next decade shall also serve as proof of success for the stressed funds set up by the government for completion of stalled projects. The financial closure of such projects and handover to the affected buyers shall be a key ingredient to restore confidence in the residential segment in the next decade.

We are in for a rollicking ride in the next decade!

From strong to explosive growth: Mahendra Jajoo, fixed income, Mirae asset management

Last decade has been a very progressive one for Indian debt markets. India has emerged as among the fastest growing major economy in the world and even though there were a few shock periods like 2013, 2016 and 2018, largely India sailed through them rather smoothly and remained as a promising investment destination.

Debt markets during this decade have developed tremendously having widened and deepened significantly. The trading volumes have grown multi fold as also participation has become more diversified, especially with mutual funds and foreign portfolio investors emerging as key players with dominating volumes.  Along with emergence of India as a major global market has also improved the economic parameters for India and nominal rates in India have come down meaningfully during the decade. Benchmark 10Y yield at around 8.25 per cent then have eased out to around decadal low of 6.50 per cent now.  

However, amazingly, due to higher CPI inflation in those years of 10—12 per cent range, real interest rates were negative in first half of the decade. Subsequently, in 2015, when RBI was formally mandated an inflation targeting monetary policy framework, it also followed a positive real rate policy. Since then, real rates have remained in 1-2.50 per cent band. Even if it was a coincidence, since then headline CPI inflation has fallen consistently and has settled in 3-5 per cent  band in last few years. As a result the situation of negative real rates in first half of the decade is now turned nto that of positive real rates.    

In the above chart, we can see that real interest rates after rising initially have now started to taper off. Negative real rates resulted in little financial savings and chaneled most savings in to physical assets like gold and real esate. However, posiitve real rates are now leading to a massive financialization of savings with mutual funds, in early trend the equity mutual funds becoming a big hit with retail investors. With improved financial market infrastructure, more and more savings are likely to be chaneled into financial assets in coming decade. As a result, we expect an explosive growth outlook in financial markets including debt markets in India for the next decade. This will not only further bring down nominal rates but also the real rates.

Depreciating rupee will continue to aid gold returns: Chirag Mehta - Senior Fund Manager - Alternative Investments, Quantum AMC

Over the last decade, returns from Gold for an Indian investor have been approximately 8 per cent, almost equally contributed by the increase in international gold prices and run away depreciation in the Rupee.  International Gold prices scaled higher post the global financial crisis but after that remained subdued under the mighty clout of central bank fervor to do whatever it takes igniting risk appetite and leaving little room for chasing gold. Indian rupee has continued to depreciate as a reflection of its ever-increasing fiscal and current account deficits helping gold when denominated in Rupees.

The outlook for next decade reflects a lot more uncertainty towards global macroeconomic conditions, ranging from heightened political risks, massive increases in global debt, erroneous central bank and government policies. It is naive to think that easy money and higher asset prices can really be a solution to current economic problems. Investors should be prepared for a new “normal” where central bankers seem to be trapped in a state of perpetual policy manipulation causing the world economy to oscillate between easy money-led growth and painful slowdowns. This experimental central banking is likely to end badly due to the dislocations of capital it has caused through prolonged periods of negative rates. Long-term trends in gold prices are driven by changes in the overall level of confidence in the monetary system and the economy.  Given the economic backdrop, it is indeed logical for gold prices to increase in value.

Rupee depreciation would also add some glitter to gold prices. Staring at an overvaluation of about 11 per cent in real effective terms compared to the long term average and the structural imbalances in India’s current account deficit will result in a gradual slide in the rupee and add to the appreciation in gold prices for Indian investors.

Cost, co-living and connectivity to drive realty going forward, climate change will hurt: Anuj Puri, Chairman, Anarock Property Consultants

Over the next decade, housing demand in India will largely be driven by affordable housing on the sale side and co-living and similar options on the rental side. Climate change will impact coastal cities and increasingly drive demand to higher-lying areas and well-connected far suburbs. Connectivity, especially via modern public transport like Metros, will become the new lodestone. Because of increasing focus on sustainability, I expect that the accent on road connectivity and private parking will become less of a demand trigger and housing projects which offer electric charging points for EVMs will become the new norm. Both new and resale properties which do not offer this vital facility will either fall out of favour or make attempts at retrofitting even in older housing societies.

Likewise, rainwater harvesting will become a compulsion rather than an option across the country. Integrated townships which offer self-sufficiency in many important aspects will become a highly aspirational configuration and municipal authorities will increasingly focus on providing the requisite connectivity to such projects. In the future, luxury will be defined by quality and healthfulness of living and the presence of green ‘lung’ space rather than by central locations. Many areas which continue to fall short on infrastructure – especially in terms of water availability – over the next few years will become ghost towns. In fact, water availability will become a massive criterion for housing-related decisions and we will see a lot of migration towards areas which still offer a sufficient supply of the most precious commodity. More developers will tie up with sustainability-oriented international experts to create the housing of the future.