The Bombay Stock Exchange may have well begun to realise the importance of real estate sector and introduced the realty index, but venture capital investors have been moving away from the realty by trimming allocations to the sector by 31% since the beginning of the year.
Venture Capital Funds (VCF) and Foreign Venture Capital (FVC) investors have been realigning their investments by reducing inflows into real estate, information technology, telecom and industrial products sectors. In contrast, investments have been piling up in the services, media and entertainment, biotechnology and pharma sectors.
However, the total investments in the country have shot up by 67% to Rs 20,310 crore as on June 30, 2007, from Rs 12,127 crore as on September 30, 2006, according to data from Securities and Exchange Board of India (Sebi) on 88 VCFs and 66 FVC investors registered with the regulator.
“There is a question mark on whether a large IT hardware company can be built in India. But, we can build a large media company or a large services company. In sectors like telecom, media, biotech there is room for differentiation,” said Rahul Khanna, director of Clearstone.
About the more than 98% surge in investments in the services sector Khanna said, “There is value in owning customers. Hence the service sector, where there is some degree of consumer connect, is favourable for investments.”
He denied that the slowdown in the IT sector investments was a result of business process outsourcing units shutting down. “The BPO industry is not shutting down. The sector would witness consolidation and specialisation,” Khanna said.
Opportunities in the telecom sector exist in telecom infrastructure and value-added space, he added. But, there is still a year to go when technologies like Wimax and WiFi will become commercially available, he says.
Among other sectors, financial services, especially the distribution of health insurance and mutual funds, may be worth investing, Khanna said.
There are three major reasons why the exposure to realty has been reduced during the past two quarters though. The interest rates on home loans have been rising and there was no tax clarity, apart from the withdrawal of the pass through status on venture capital investments. Even property prices have been more or less stable in most regions,” said Abhijit Barase, manager of Anand Rathi Realty Fund.
But investments in realty may shoot up again, he says. “We now have the clarity on tax issues and have started finding projects to fund. However, we prefer residential projects rather than commercial projects as the exit route in the former is easier,” said Barase.
Global property and REIT stocks snapped their seven-year bull drive during the second quarter of 2007, according to Standard & Poor’s Index Services.
“High leverage, which provided much of the impetus for the large property company deals in the last few years, has lost its sheen. For example, the total size of property deals in the US dropped dramatically in the second quarter to $ 6 billion, from over $ 29 billion in the first quarter of this year,” an S&P report on Global Property and REIT stated.
Source: DNA India