Want Income, Diversification And An Inflation Fix? Some Advisors Are Turning To Real Assets: Market Analysis and Outlook

India’s economy has long been driven by the whims of the stock market, with investors seeking to capitalize on the next big thing. But with the country’s inflation rate hovering above 6% and interest rates rising to combat it, some advisors are turning to a more traditional route: real assets. Real estate investment trusts (REITs), agriculture, and commodities are being increasingly touted as a way to generate income, diversify portfolios, and even hedge against inflation. According to analysts at Edelweiss Financial Services, REITs have been a standout performer in India, with the country’s REIT index rising by over 20% in the past year alone.

As the Indian economy continues to grow, so too does the demand for real assets. With the country’s population projected to reach 1.7 billion by 2050, the need for housing, infrastructure, and other essential services is only set to increase. By investing in real assets, advisors hope to tap into this demand and generate steady returns. But what exactly are real assets, and how do they differ from traditional investments like stocks and bonds?

The Core Story

At its core, the concept of real assets is straightforward: they are tangible, physical objects that hold value and can be used to generate income. In India, real assets can take many forms, from REITs and real estate development companies to agricultural land and commodities like gold and oil. One of the key benefits of real assets is their ability to provide a steady income stream, even in times of economic uncertainty. By investing in a REIT, for example, an investor can earn regular dividend payments, which can help to mitigate the impact of market volatility.

In recent years, REITs have been a particularly popular choice for Indian investors. The country’s first REIT, Embassy Office Parks REIT, was launched in 2019 and has since seen its share price rise by over 50%. Another REIT, Indiabulls Real Estate, has also seen significant gains, with its share price rising by over 30% in the past year. Analysts at Kotak Securities have flagged REITs as a key area of focus for investors looking to generate income, citing the sector’s strong growth potential and relatively low volatility.

But REITs are not the only real asset option available to Indian investors. Agriculture, for example, has long been a staple of the Indian economy, with the country producing a significant portion of the world’s wheat, rice, and other cereals. By investing in agricultural land or companies involved in the agricultural sector, advisors hope to tap into this demand and generate steady returns. One of the key benefits of agriculture is its ability to provide a hedge against inflation, as food prices tend to rise during periods of high inflation.

Why This Matters Now

So why are real assets suddenly getting so much attention? The answer lies in the current economic environment. With interest rates rising to combat inflation, investors are increasingly looking for alternative sources of income. Real assets, with their ability to provide a steady income stream, are seen as a key solution. According to analysts at ICICI Securities, the Indian REIT market is expected to see strong growth in the coming years, driven by increasing demand for housing and infrastructure.

But real assets are not just about generating income – they also offer a way to diversify a portfolio. By investing in a range of real assets, advisors can reduce their exposure to traditional markets and tap into a new source of returns. This is particularly important in India, where the stock market has been known to be volatile in the past. By spreading their investments across different asset classes, advisors can reduce their risk and increase their potential returns.

Key Forces at Play

So what are the key forces driving the growth of real assets in India? One of the main factors is the increasing demand for housing and infrastructure. As the country’s population continues to grow, so too does the need for homes, offices, and other essential services. By investing in REITs and other real estate development companies, advisors can tap into this demand and generate steady returns.

Another key force is the rise of institutional investors in the Indian market. In recent years, a number of foreign institutional investors (FIIs) have entered the Indian market, driving up demand for real assets. According to data from the Securities and Exchange Board of India (SEBI), FIIs have been increasingly active in the Indian REIT market, with their share of total investments rising from 5% in 2020 to over 20% in 2022.

Finally, there is the role of policy and regulation. In 2014, the Indian government introduced a number of reforms aimed at encouraging investment in the real estate sector. These reforms included the introduction of the REIT regime, which allowed companies to list their properties on the stock exchange and raise capital from investors. Since then, the Indian REIT market has seen significant growth, with a number of companies listing their shares on the stock exchange.

Regional Impact

So what impact is the growth of real assets having on the regional economy? One of the key effects is the creation of jobs and economic growth. By investing in real assets, companies are creating new opportunities for employment and stimulating economic growth. According to data from the Indian government, the real estate sector has been a key driver of employment growth in recent years, with the sector creating over 1 million new jobs between 2018 and 2022.

Another key effect is the impact on local communities. By investing in real assets, companies are able to generate wealth and create jobs in local communities, which can have a positive impact on living standards. According to analysts at HDFC Securities, the Indian REIT market has been a key driver of economic growth in a number of regions, including Mumbai and Bengaluru.

What the Experts Say

So what do the experts say about the growth of real assets in India? According to analysts at Morgan Stanley, the Indian REIT market is expected to see strong growth in the coming years, driven by increasing demand for housing and infrastructure. “The REIT market in India has been a key area of focus for investors in recent years,” said an analyst at Morgan Stanley. “We expect to see strong growth in the coming years, driven by increasing demand for housing and infrastructure.”

Another key player in the Indian real assets market is the Agricultural and Processed Food Products Export Development Authority (APEDA). According to data from APEDA, the Indian agricultural sector has been a key driver of economic growth in recent years, with the sector generating over $100 billion in revenue in 2022 alone. “The agricultural sector in India has been a key driver of economic growth in recent years,” said a spokesperson for APEDA. “We expect to see continued growth in the coming years, driven by increasing demand for food and other agricultural products.”

Risks and Opportunities

So what are the risks and opportunities associated with investing in real assets in India? One of the key risks is the impact of economic volatility on the sector. According to analysts at ICICI Securities, the Indian real estate sector has been known to be volatile in the past, with prices rising and falling rapidly in response to changes in economic conditions. “The real estate sector in India has been known to be volatile in the past,” said an analyst at ICICI Securities. “We expect to see continued volatility in the coming years, driven by changes in economic conditions.”

Another key risk is the impact of regulatory changes on the sector. In recent years, the Indian government has introduced a number of reforms aimed at regulating the real estate sector. These reforms have included the introduction of a new law requiring developers to register their projects with the government. According to analysts at Kotak Securities, the impact of these reforms on the sector is likely to be significant, with prices potentially falling as a result of reduced demand.

What to Watch Next

So what should investors be watching out for in the coming months? One key area to watch is the impact of the Indian government’s latest budget on the real estate sector. According to analysts at HDFC Securities, the budget is likely to have a significant impact on the sector, with new policies and regulations potentially driving up demand for housing and infrastructure. “The budget is likely to have a significant impact on the real estate sector,” said an analyst at HDFC Securities. “We expect to see increased demand for housing and infrastructure as a result of new policies and regulations.”

Another key area to watch is the impact of the ongoing COVID-19 pandemic on the sector. According to analysts at Morgan Stanley, the pandemic is likely to have a significant impact on the real estate sector, with reduced demand for housing and infrastructure potentially driving down prices. “The pandemic is likely to have a significant impact on the real estate sector,” said an analyst at Morgan Stanley. “We expect to see reduced demand for housing and infrastructure as a result of lockdowns and other restrictions.”