Strong private equity flows into realty

Private equity inflows into real estate grew 62% in 2016 from the a year ago, with total inflows at Rs38,000 crore


Although commercial leasing growth has been very strong and residential unit sales are still shaky, PE flows into the latter was about 1.7 times that into the former. Graphic by Subrata Jana/Mint
Although commercial leasing growth has been very strong and residential unit sales are still shaky, PE flows into the latter was about 1.7 times that into the former. Graphic by Subrata Jana/Mint

Amid demonetization woes and its impact on real estate, 2016 marked regulatory changes that instilled greater investor confidence in the sector. Private equity (PE) inflows into real estate grew 62% from the a year ago, with total inflows at Rs38,000 crore. Equity instruments gained traction, growing 29%. Although commercial leasing growth has been very strong and residential unit sales are still shaky, PE flows into the latter was about 1.7 times that into the former.

A report by JLL India says most PE inflows into real estate happened in the second half of 2016. Investments rose 121%. This was despite the travails of demonetization and US presidential elections. Though the historic high of 2007 in terms of total PE inflows into real estate was not breached, last year proved to be the second-best year so far. This signals fresh optimism in the sector.

Transmission line capacity additions in the slow lane

Weak execution is weighing on transmission line capacity additions. In April-November, capacity additions are almost 15% lower than the year ago, data compiled by India Ratings and Research Pvt. Ltd show. Central and state government agencies continue to add a major chunk of transmission lines, though private sector participation is rising.

Lack of sufficient transmission lines remains a bottleneck for the power sector. Due to capacity constraints, large buyers of electricity are unable to fully access low-cost power. “Unavailability of transmission corridor continued to be a deterrent and led to market splitting and price variations,” Indian Energy Exchange said in its December review. “The Southern import was congested about 47% of the time mainly due to increased demand, outages and limited availability of the corridor.”

Refining capacity set to rise in sync with demand

Demand for petroleum products may grow, given the thrust on localization and the Make in India initiative. To meet this demand, the domestic oil and gas firms are planning capacity expansions—in sync with the government’s intent to cut imports. Therefore, domestic refining capacity has grown at a 4.7% compounded annual growth rate between FY02 and FY07.

According HDFC Securities Ltd, “the current capacity of domestic refineries is 235 mtpa, of which public sector accounts for 64%.” As demand expands, the refining capacity also is likely to grow at 5.7% until FY22—a higher rate than earlier times.

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