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Last Updated : Apr 07, 2017 11:14 AM IST | Source: CNBC-TV18

See REITs as new instrument of investment; rate cut likely in 3-6 mths: Keki Mistry

In an interview to CNBC-TV18, Keki Mistry, VC & CEO of HDFC gave his take on the monetary policy.

In an interview to CNBC-TV18, Keki Mistry, VC & CEO of HDFC said it was expected that the monetary policy would be neutral and the RBI’s focus would be on inflation. However, he is hopeful of seeing a 25 basis points rate cut by RBI in the next 3-6 months.

He said inflation is an important factor which has to be watched out for especially since one is still uncertain about monsoon and there is also the possibility of impact from farm loan waiver. If the monsoon is poor, then inflation risk will rise, said Mistry.

According to him, with the RBI yesterday allowing banks to invest in Real Estate Investment Trusts (REITs), it will help increase its demand going forward. REITs will be the new instrument of investment, he added.

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The house would like to participate in realty through REITs, but with small investments because the risk there is high. However, the returns there are also high, said Mistry.

Below is the verbatim transcript of the interview.

Latha: What are your key takeaways from the monetary policy?

A: I think the policy was pretty much in line with what one would have expected and the Reserve Bank of India (RBI) would continue with its tone on having a sort of a neutral stance and they would say that inflation is something which they need to worry about but barring that no change in interest rates. I think that stance has pretty much sort of played out.

I think the couple of things that stood out is the mention about farm loan waiver - that could put little bit more inflationary pressures than what we were originally expecting and positive is that oil prices have not moved up the way they have done in November, December and February.

Monsoon outlook continues to remain a little uncertain at the moment, so if the monsoons turn out to be bad then we run a serious risk of inflation, but my personal view is that if monsoons turn out to be alright and commodity prices remain as benign as they have been, oil prices remain as benign as they are, there may still perhaps be, over the next six months a possibility of another 0.25 percent cut in interest rates.

Sonia: This morning we have geo-political issues to worry about as well so oil prices have moved up higher. Some of the statements made by the Governor were a bit cautious raising fears of perhaps even a rate hike in case inflation does not come under control because of the reasons you mentioned monsoon and now an oil price hike. Do you reckon that there could be a rate hike coming anytime soon?

A: No, I would believe that the monsoons, the critical thing I would look at is monsoons, one. Second, I would look at global events that there is no sudden global shock that comes in to the system and outlook on both of this was benign, if we were to assume that monsoons were to be normal and if we were to assume that there would be no shock coming from overseas then I believe there is this scope for interest rates to reduce by a 0.25 percent.

Anuj: Do you expect more interest in real estate sector now that banks can invest in real estate investment trust (REIT)?

A: Undoubtedly. When we see actual REITs being created in the system, I think there is a massive demand for REIT; the demand comes not just from banks and mutual funds. The demand will also come from individuals because as an individual today the instruments in which you can invest are pretty much known but if we create a new instrument where people can participate to some extent in real estate transactions, today if you are a middle class men and you have a say Rs 50,000 to invest or a Rs 100,000 to invest, you cannot invest Rs 50,000 or Rs 100,000 in a real estate project be it residential or commercial.

So, REITs gives you the opportunity of participating in the real estate market, getting the upside in the real estate market and at the same time generating certain amount of fixed return which comes out of the rentals that are received on the property that is rented out. It brings with it some element of risk but in that sense it is not as safe as the fixed deposit product of a bank would be. It brings in higher elements of risk but it also brings in a much higher return and I don’t think risk is that high.
First Published on Apr 7, 2017 10:54 am
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