Teji Mandi: Three things investors should know on November 13, 2020
Teji Mandi

Real Estate: Rising from the ashes

The real estate sector has been facing turbulence for many years now. The lockdown was an added pain for the sector. The sector was already reeling under the impact of demonetization and RERA implementation.

The government’s focus is now seen shifting towards this ailing sector.

In Aatmanirbhar 3.0 package, the government has incentivized middle-class home buyers. Income tax relief and extending funding for PM Aavas Yojna (Urban) will give a fillip to the housing demand.

We expect that the real estate sector has seen a bottom now. There is a renowned interest from home buyers since the ease of lockdown. Also, the sector has gone through a consolidation phase. Many incompetent builders have been removed from the system. Now, renewed focus from the government offers an attractive outlook for the sector.

Aatmanirbhar 3.0: Focus is on Teach them how to fish:

The major criticism of the first stimulus package was the lack of cash infusion. It appears that the government has paid little attention to that criticism and avoided direct cash handouts even this time.

The PLI schemes covering 10 sectors and focus on reviving real estate are the major positives. But, there is no direct money that is going to flow into the system. Instead, the government has focused on boosting the credit lines. It will encourage ground level activities and thereby boost employment.

The second stimulus package is like the first one. The government has kept its focus on employment generation and boosting economic activities. They have refrained from directly handing out the cash. Don't give them fish; teach them how to fish appears to be the government's motto.

Retail inflation: The devil's refusal

India's retail inflation in October rose to the highest in more than six years on account of elevated food prices. According to the consumer price index (CPI) data, inflation stood at 7.61% in October.

Consumer Food Price Index (CFPI) jumped to 11.07% in October, up from 10.68% in September. The RBI has faced a mandate by the government to keep inflation at 4 per cent (plus/minus 2%). CPI at the current level is too high from the target range.

Typically, higher inflation causes strong economic growth. If total demand in an economy expands faster than total supply, it causes inflation. And, that is precisely what India needs at the moment.

The chances are that inflation is unlikely to cool down soon as the RBI's focus is likely to be on fueling the growth. Now that CPI is at 6 year high, we anticipate no further rate cuts from the RBI for a long time to come. The RBI has carried the ship till here. Now, the government will also have to increase its spending to complete the revival.

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