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REITs in India
The white paper lays out the evolution of REITs in the global arena, including India, and then empirically analyzes its performance against other asset classes in the US and Singapore markets to provide insight to Indian investors. We have compared its performance against direct investment in real estate properties and performed a return analysis between various asset classes in India.
- EITs have historically outperformed both equities and fixed income. The average yield of REITs was roughly 13% in the US during FY1994-2012 and 15% in Singapore during FY2007-2013.
- The risk reward analysis through the Sharpe ratio highlights the ascendancy of REITs over equities and treasuries. Hence, REITs offer potential diversification benefits to investors.
- On a peer to peer comparison with direct real estate investment, REITs yield similar returns compared to direct investment in real estate property. Clearly, REITs offer a hassle-free investment instrument.
- In contrast to the Indian investment climate, though FD/bank deposit rates offer better returns to investors (especially those with a lower risk appetite) than investment in other asset classes, REITs with growth stock characteristics could draw investment from investors driven by value stocks.
The white paper is useful for decision makers who are considering share buybacks as an option to return money to shareholders. For this study we analyzed 50 recent buybacks* by corporate India over the past three years and put them through a robust critical returns-based test and analyzed their performance over a period of 6 months after the buyback was announced.
- On average, buybacks were offered at a premium of roughly 25%
- The most critical factor that separated the successful vs. the not-so successful buybacks was the timing
- Managers who were able to buy their own undervalued stock were successful while those who initiated buybacks at a time when the valuations seemed high were unsuccessful
*Companies included in the study were Edelweiss Financial, DCM Shriram, Gujarat Apollo, NHPC, Jindal Steel and Power, Claris Lifesciences, CAIRN India, Bayer CropScience, Sinclairs Hotels & Resort, Motilal Oswal Financial, eClerx, and HT Media, among others.