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CO
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The ‘Core’ of India’s Slowdown: Construction Investments
Painful correction or prolonged slowdown?
18 February 2020
The Economy Observer
This combination of
very weak residential
construction and robustly
growing house prices in
India is unsustainable,
reflecting that the fall in
house prices is the most
ideal – albeit painful –
solution. Otherwise a
prolonged slowdown is
inevitable
Fixed investments in the construction sector (residential and non-residential) in India
amounted to 15.3% of GDP in FY19, lower than the peak of 19.7% in FY12.
Residential investments have fallen faster from ~13% of GDP in FY12 to 7.8% in FY19.
During the past decade (2010s), the fall in India’s construction investments was one
of the worst among the world’s major economies and, as such, is one of the reasons
for the economic weakness in the country today. A comparison of India vis-à-vis the
world’s other major economies suggests that the former’s dependence on
construction investments is much higher. At over 15% of GDP, investments in the
construction sector in India are more than double of that in the US and Thailand.
Further, notwithstanding the sharp fall in India’s residential investments in the past
decade, the share of residential investments in India’s GDP is still the highest
compared to other major economies and almost four times the size in other
emerging economies such as South Africa and Thailand.
Details also confirm that, unlike in India, residential construction investments have
grown faster than non-residential construction investments in most other major
economies. In fact, India and Singapore are the only two nations in our sample of 17
countries (and Euro Area, EA) where residential investments have declined
significantly over the past five years.
Notwithstanding weak residential construction investment, a comparison of
residential property prices – in real terms – in the world’s major countries suggests
that real prices have grown at an average of 2.7% since 2014 in India, much faster
than many other nations in our sample. All the economies with higher growth in real
prices are either witnessing a good revival in the residential construction sector with
its share at highest level in many years, or it has weakened only marginally.
This combination of very weak residential construction and robustly growing house
prices in India is unsustainable, reflecting that the fall in house prices is the most
ideal – albeit painful – solution. Otherwise a prolonged slowdown is inevitable.
Further, although official data on construction investments in India is released only
annually with a big lag of 10 months, several proxies – such as cement production,
steel consumption, IIP for NMMP and collection of ‘stamps’ & registration fees’ by
states – confirm renewed weakness in the sector in FY20, after some growth in
FY18/FY19 (at least partly helped by very weak period from FY14-17).
Finally, the details of the collection of ‘stamps’ & registration fees’ by states confirm
that the weakness in the construction sector is majorly attributed to the largest (or
Tier-I) states. Growth in ‘stamps & registration fees’ moderated from 15.3% in
9MFY19 to only 4.5% in 9MFY20 for the five largest states (which account for over
50% of total receipts), while growth eased from 19% to 10.5% for other 13 states.
Maharashtra (MH) and Delhi (DL) are the two most affected states from this
slowdown, as ‘stamps & registration duty’ accounts for more than 10% of their total
receipts.
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
Yaswi Agrawal
– Research analyst
(Yaswi.Agrawal@motilaloswal.com); +91 22 7193 4196
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Indian economy’s dependence on construction investments…:
Almost a year ago, in its
'Strategy
for New India @75',
the NITI Aayog argued that
increasing the investment rate, as measured by gross fixed capital formation (GFCF),
from ~29% to 36% of GDP by 2022 is the first key step to achieve high growth of 9%
by 2022-23. Things though appear to be moving in contrast. After rising for the first
time in seven years in FY19, India’s investment rate is expected to fall again from
29% to 28.1% of GDP in FY20, the lowest level in 16 years
(Exhibit 1).
The recent sharp decline in
India’s investment rate can
be largely attributed to
construction activities, for
which CAGR was only 7.5%
during the past five years –
the lowest in any five-year
period during the past three
decades.
Fixed investments (or GFCF) can be broadly divided into two segments: construction
(such as dwellings, building and other structures) and non-construction (such as
machinery & equipment, intellectual property rights, etc.). Official data suggests
that the recent sharp decline in India’s investment rate can be largely attributed to
construction activities, for which CAGR was only 7.5% during the past five years –
the lowest in any five-year period during the past three decades
(Exhibit 2).
In
contrast, non-construction investment CAGR has been ~12% over the past five
years. The last five-year period (FY15-19), in fact, is the only period since 1990s
when construction investments have lagged non-construction investments so
significantly.
Exhibit 2:
…and construction investments have lagged non-
construction investments
GFCF: Construction
(% CAGR)
15.8
16.4
18.5
13.3
6.7
20.0
14.7
13.2
7.5
Exhibit 1:
India’s fixed investments rate is expected at 16-
year low in FY20*…
40
(% of GDP)
30
20
10
0
FY90 FY93 FY96 FY99 FY02 FY05 FY08 FY11 FY14 FY17 FY20*
* Government’s estimate for FY20
28.1
Gross fixed capital formation (GFCF)
GFCF: Non-construction
22.8
14.2
11.7
FY89-94 FY94-99 FY99-04 FY04-09 FY09-14 FY14-19
Source: Central Statistics Office (CSO), CEIC, MOFSL
Consequently, the share of the construction sector in India’s fixed investments has
fallen from its peak of >60% in early 2000s to 52-53% in recent years, the lowest
level in the past two decades
(Exhibit 3).
India’s fixed investments in the
construction sector amounted to 15.3% of GDP in FY19, lower than its peak of 19.7%
in FY12.
Residential activities have
declined from ~13% of GDP
in FY12 to only 7.8% in
FY19, while the share of the
non-residential sector has
increased from ~35% to
~50% during the same
period.
Construction investments can be further divided into two segments: residential and
non-residential structures. Although there is no such data available for India, we
assume household investments (or physical savings) as a proxy for residential
construction. Within construction investments, residential activities have declined
faster from ~13% in FY12 to only 7.8% of GDP in FY19
(Exhibit 4).
It implies that the
share of the non-residential sector has increased rapidly from ~35% in FY12 to ~50%
in FY19. As a percentage of GDP, investments in non-residential structures have
risen from 6.9% in FY12 to 7.6% of GDP in FY19.
18 February 2020
2
 Motilal Oswal Financial Services
Exhibit 3:
Share of construction sector in India’s GFCF has
fallen to the lowest level in two decades…
65
60
55
50
45
FY89 FY92 FY95 FY98 FY01 FY04 FY07 FY10 FY13 FY16 FY19
(% of GFCF)
Total Construction
Exhibit 4:
…which can largely be attributed to residential
construction
25
20
15
10
5
0
FY89 FY92 FY95 FY98 FY01 FY04 FY07 FY10 FY13 FY16 FY19
Source: CSO, CEIC, MOFSL
12.8
6.9
Residential
(% of GDP)
Non-residential
Total Construction
19.7
15.3
7.6
7.8
…is among the highest compared to other major nations…:
At over 15% of GDP,
investments in the
construction sector in India
are more than double of
that in the US and Thailand.
A comparison of India vis-à-vis the world’s other major economies suggests that the
former’s dependence on construction investments is much higher. At over 15% of
GDP, investments in the construction sector in India are more than double of that in
the US and Thailand. The only other nation with much higher construction
investments is Indonesia – at as high as almost a quarter of its GDP
(Exhibit 5).
Even
if we compare the peak levels achieved in all these nations in the 21
st
century,
construction investments in India were the third highest at 19.7% of GDP in FY12
after Indonesia (26.6% of GDP in 2009) and Spain (20.7% of GDP in 2006).
Exhibit 5:
Comparison of construction investments in 21 major nations and Euro Area (EA)
GFCF: Construction (% of GDP)
14.1 14.2 15.3 15.3
12.3 12.5 13.1
11.4
10.0 10.6 10.6 10.8 10.9
24.3
6.6
6.8
7.8
8.1
8.4
8.8
9.4
9.8
Latest available data for nations (2019 for all European nations, Malaysia, Indonesia, Philippines, USA and 2018 for all others, FY19 for India)
Source: CSO, CEIC, Organisation for Economic Co-operation and Development (OECD), MOFSL
…and India’s residential investments are highest among major economies:
Share of the residential
investments in India’s GDP
– at 7.8% – is the highest
compared to other major
economies.
Further, notwithstanding the sharp fall in India’s residential investments in the past
decade, the share of the residential investments in India’s GDP – at 7.8% – is still the
highest compared to other major economies
(Exhibit 6)
and almost four times the
size in other emerging economies such as South Africa and Thailand (data for five
EMs – Argentina, Hong Kong, Indonesia, Malaysia and Philippines – on residential
construction are not available, and thus, not included in this analysis). Canada has
the second highest residential investments at 7.5% of GDP. Comparing the peak
levels suggest that Spain is the only other nation with residential investments at
>10% of GDP in 2006; however, it was lower than the peak of 12.8% of GDP in India
in FY12.
18 February 2020
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 Motilal Oswal Financial Services
Exhibit 6:
Comparison of residential investments in 16 major nations and Euro Area (EA)
GFCF: Residential construction (% of GDP)
5.5
3.1
3.7
3.7
3.8
4.3
5.6
6.0
6.0
6.0
6.4
6.6
7.5
7.8
1.8
2.0
2.2
Latest available data for nations (2019 for all European nations, USA and 2018 for all others, FY19 for India)
Source: OECD statistics, CSO, CEIC, MOFSL
India
versus
other nations – Residential
versus
non-residential construction
investments:
As discussed above, residential construction has done worse than non-residential
construction in India during the past few years. During the past seven years (FY12
and FY19), residential investments have acted as a drag on India’s real GDP growth,
while non-residential construction investments have performed much better. India’s
real GDP growth has averaged 7% during the past seven-year period, of which
construction investments have contributed 0.6 percentage point (pp). Within
construction investments, while residential structures have declined – subtracting
0.1pp from real GDP growth since FY13, non-residential structure investments have
added an average of 0.7pp during the seven-year period
(Exhibit 7).
Exhibit 7:
Residential construction investments declined
between FY13 and FY16 before recovering…
6
4
2
0
(2)
(4)
FY98
FY01
FY04
FY07
FY10
FY13
FY16
FY19
All data in real terms
(pp)
Residential
Non-residential
Construction
Exhibit 8:
…however, there was negligible growth in
residential construction from FY14 to FY19
14
12
10
8
6
4
2
0
8.7
4.0
7.7
8.1
12.0
4.8
6.8
Residential
(% CAGR)
Non-residential
11.9
GFCF: Construction
7.8
11.7
5.4
6.4
0.3
4.4
9.9
FY94-99
FY99-04
FY04-09
FY09-14
FY14-19
Source: CSO, CEIC, MOFSL
Between FY14 and FY19,
while there was negligible
growth in residential
construction investments,
non-residential construction
CAGR stood at 10%.
Notably though, residential construction investments have grown faster during the
past three years (FY17 to FY19), following a very weak four-year period between
FY13 and FY16. Still, there was almost negligible growth in residential construction
investments during the past five-year period (FY14 to FY19), while non-residential
construction CAGR stood at 10%, helping real investments in total construction to
grow 4.4% during the period
(Exhibit 8).
18 February 2020
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 Motilal Oswal Financial Services
In contrast to India’s
experience, residential
construction has performed
better than non-residential
construction in most other
major economies.
In contrast to India’s experience, however, residential construction investments
have performed better than non-residential construction investments in most other
major economies. A comparison of residential construction investments as a
percentage of GDP in 2018 (or FY19) vis-à-vis the peak during the past five years
among world’s major economies confirms that while such investments have
dropped sharply in India and Singapore, they have fallen somewhat in eight other
nations (Australia, Canada, Italy, Japan, South Africa, South Korea, Taiwan and
Thailand) and are at the peak in the remaining six economies and EA
(Exhibit 9).
Non-residential construction investments, however, have declined in almost all
economies, except Germany and Japan.
GFCF: Residential construction
GFCF: Non-residential construction
0.0
(1.1)
(3.5)
(1.5)
(0.2)
(0.9)
(0.2)
(0.9)
0.0
(0.3)
(0.4)
(0.2)
(0.5)
(0.5)
0.0
(0.5)
(0.0)
(0.2)
Exhibit 9:
Change in residential and non-residential construction investments between 2018 (FY19) and the peak in last 5 years
(pp of GDP)
(0.1)
(5.0)
(0.3)
(2.2)
0.0
(0.0)
0.0
(0.2)
0.0
0.0
(2.5)
(0.4)
0.0
(0.2)
(0.1)
(0.2)
Source: OECD Statistics, CSO, CEIC, MOFSL
Connection between residential activities and house prices
While India’s residential
construction has weakened
sharply in recent years,
house prices have grown at
an average of 2.7% since
2014, much faster than
many other nations.
In the last segment of our cross-country comparison, we match the movements in
residential construction activities with those in residential property prices in the
major economies. A comparison of residential property prices – in real terms – in
the world’s major countries suggests that while India’s residential construction
investments have weakened significantly over the past five years, houses’ real prices
have grown at an average of 2.7% since 2014, much faster than many other nations
in our sample.
House prices in Singapore – with faster slowdown in residential
investments – increased at a meager 0.4% during the past five years.
Change* in GFCF: Residential construction
1.8
1.9
2.2
0.0
(0.5) (0.2)
Real prices
2.5
0.0
(0.8) (2.5) (0.0)
2.6
2.7
3.0
4.0
Exhibit 10:
Change in houses’ real prices (% YoY) and residential construction (% of GDP)
6
4
2
0
(2)
(4)
(0.1) (0.4) (0.2) (0.4)
0.4
0.8
4.2
4.5
4.7
0.8
0.9
0.0
0.0
0.0
0.0
(0.3)
(0.4) (0.2) (3.5) (0.1) (0.2)
(1.2) (0.5)
* Change in the latest data (2018/2019) vis-à-vis highest in the past five years (0.0 implies that residential construction is at 5-yr high)
# Data for total construction investments
Source: Bank for International Settlements (BIS), OECD Statistics, CEIC, MOFSL
All economies with faster growth in house prices have either witnessed a good
revival in residential construction investments (with its share at the highest level in
the past many years), or it has weakened only marginally.
18 February 2020
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 Motilal Oswal Financial Services
Leading indicators suggest that India’s construction investments have
weakened further in FY20:
Since fixed investments in the construction sector are dominated by the
unorganized sector in India, there is no regular official statistics available. Detailed
data on GFCF is released on an annual basis and that too with a lag of 10 months.
Recent data was published at end-Jan’20 for the year ended Mar’19. Nevertheless,
considering the importance of construction investments, we look at the four leading
indicators, which can provide us with a very good directional understanding of
India’s construction activities.
#1: Cement production suggests subdued construction activity…:
Cement production data is available on a monthly basis for a relatively long period
of time beginning 1999 and the annual data is available for almost the past three
decades. Since it is not viable to store cement, almost the entire production is
equivalent of the consumption in the absence of inventory. Cement is one of the
most important raw materials in the construction sector, and thus, it is not
surprising that the two variables have moved broadly in line with each other over a
long period of time
(Exhibit 11).
The simple correlation between cement production
and real investments in construction is ~31% over the past 25 years.
Cement production grew
only 0.7% YoY in Apr-Dec’19
as against 14% growth a
year ago, indicating that
construction activities have
also weakened in FY20.
Just like construction investments recovered in FY18 and FY19, cement production
also grew sharply after declining in FY17 (primarily due to demonetization). In the
first nine months of FY20, however, cement production growth weakened sharply to
only 0.7% YoY, as against 14% growth in the corresponding period last year. This
indicates that construction activities have also weakened in the current year, after
good growth in the past few years.
Exhibit 12:
…while IIP: NMMP actually declined in 9MFY20
versus
10% growth a year ago
GFCF: Construction
20
15
10
5
0
(5)
(% YoY)
IIP:NMMP
Exhibit 11:
Cement production grew only incrementally in
FY20 indicating weak construction activities…
GFCF: Construction
20
15
10
5
0
(5)
FY95
FY99
FY03
FY07
FY11
FY15
FY19
GFCF: Construction in real terms
* Apr-Dec’19 period
(% YoY)
Cement prod
FY02
FY05
FY08
FY11
FY14
FY17
FY20*
Source: CEIC, MOFSL
NMMP production also
suggests that construction
activities weakened this
year, as it declined 1.2% in
9MFY20, as against ~10%
growth a year ago.
#2: …also confirmed by IIP for non-metallic mineral products (NMMP):
Another sub-component of India’s index of industrial production (IIP) called ‘non-
metallic mineral products (NMMP)’ is also a very good indicator of construction
activities in the country. This component includes a number of items which are
used in construction activities such as cement, ceramic tiles, non-ceramic bricks &
tiles, ceramic sanitary ware, polished granite and marble slabs. NMMP production
also suggests that construction activities weakened this year, as it declined 1.2% in
9MFY20, as against ~10% growth a year ago
(Exhibit 12).
18 February 2020
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 Motilal Oswal Financial Services
#3: Steel consumption has also weakened in FY20…
Steel consumption has also
grown slowly at only 3.4%
in 9MFY20, suggesting that
construction activities may
have weakened in FY20.
Just like cement production, steel consumption (domestic production adjusted for
external trade and inventories) could also be used as a proxy for construction
sector. The relationship, however, is not as strong as cement production
(Exhibit 13
below),
probably because only about two thirds of steel is used in construction
activities. Steel consumption has also grown slowly in 9MFY20 – at only 3.4%
during Apr-Dec’19 vis-à-vis 7.5% in FY19, suggesting that construction activities
may have weakened in FY20 compared to the previous years.
Exhibit 14:
…same as the collection of ‘stamps &
registration duties’ by the states
40
30
20
10
0
6.9
Stamp duty & registration fees
(% YoY)
Exhibit 13:
Steel consumption has also weakened in
9MFY20…
GFCF: Construction
15
10
5
0
(5)
(10)
FY08
FY10
FY12
FY14
FY16
FY18
FY20*
GFCF: Construction in real terms
* Apr-Dec’19 period
Steel consumption
(10)
FY00
FY04
FY08
FY12
FY16
FY20*
Source: CEIC, Comptroller and Auditor General of India, MOFSL
#4: …and states’ collection of ‘stamps & registration fees’ a clear indication
of frail construction investments in FY20
Finally, we use the data on receipts of ‘stamps and registration fees’ by most Indian
states to verify if the transactions in the real estate sector are growing faster or
not. This, we believe, is probably the most important and relevant indicator to get
an idea on whether the real estate market is growing faster or not.
‘Stamps & registration fees’
have increased only 7% YoY
in 9MFY20, as against
average growth of 19% in
the previous two years.
Total collection under ‘stamp & registration fees’ by all states amounted to INR1.1t
in FY18, which is likely to have risen to INR1.25t (0.7% of GDP and 5% of all states’
total receipts) in FY19. Since most states now publish monthly finances on a regular
basis with uniform details, it is easy to collect data on such receipts for as many as
23 Indian states. Together, these states account for 92-95% of all such receipts.
During the first nine months of FY20 (Apr-Dec’19), ‘stamps & registration fees’ have
increased only 7% YoY, as against average growth of 19% in the previous two years
(Exhibit 14).
Since we have regular monthly data for 19 states since late 2014, collection of
‘stamps & registration fees’ can be analyzed further. Interestingly, Maharashtra –
the largest Indian state in terms of GDP – accounted for as much 23% of all such
receipts by all states, followed by Uttar Pradesh (UP – 12.6%), Tamil Nadu (TN –
8.8%), Karnataka (KA – 8.6%) and Gujarat (GJ – 6.2%). Together, these five states
account for about two thirds of all receipts on account of ‘stamps & registration
fees’ in the country
(Exhibit 15).
Maharashtra – the largest
Indian state in terms of GDP
– accounted for as much
23% of all such receipts by
all states.
18 February 2020
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 Motilal Oswal Financial Services
Slowdown in collection of
‘stamps & registration fees’
in FY20 has been more
prominent in the five
largest states.
Further details suggest that while collection of ‘stamps & registration fees’ has
weakened in all states in 9MFY20, the slowdown has been more prominent in the
five largest states. Growth in collection of ‘stamps & registration fees’ moderated
from 15.3% in 9MFY19 to only 4.5% in 9MFY20 for the five largest states, while
growth has eased from 19% to 10.5% for the other 13 states
(Exhibit 16).
In fact, average growth in the five largest states during the past five years (since
when monthly data is available) has lagged growth in such collection witnessed in
the other 13 states. While the former has seen average growth of 8.4%, the latter
has grown at an average of 12.5% since FY15.
Exhibit 15:
Maharashtra alone accounts for almost a quarter
of all such receipts…
(%)
WB, 4.5
Others,
19.2
AP, 4.3
GJ, 6.2
HR, 4.5
TR, 4.3
TN, 8.8
MH, 22.8
MP, 4.2
Based on the data for FY19
KA, 8.6
Exhibit 16:
…and construction slowdown can be largely
attributed to five largest states
25
20
15
10
5
0
(5)
FY16
FY17
FY18
FY19
FY20
Apr-Dec period for all years
Source: CEIC, CAG, MOFSL
(% YoY)
Largest five states
Other 14 states
UP, 12.6
All high-frequency leading
indicators suggest that
construction activities have
weakened sharply in FY20.
Overall, thus, all high-frequency leading indicators suggest that construction
activities have weakened sharply in FY20, which is also reflected in the fact that real
investments have actually grown only 2% YoY in 1HFY20, following ~10% growth in
the past two years. Not surprisingly then, the CSO expects India’s investment rate to
fall from 29% in FY19 to 28.1% of GDP in FY20.
18 February 2020
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 Motilal Oswal Financial Services
Conclusion: What could the future entail?
Not only is India’s
dependence on
construction investments
among the highest but the
fall in such investments
during the past 5-7 years
has also been among the
highest.
Overall, it is not a new finding that India’s construction investments have not
performed well over the past few years. From its peak of ~20% of GDP in FY12,
India’s construction investments have fallen to 15.3% of GDP in FY19
(Exhibit 3-4
above).
A comparison of India’s construction sector vis-à-vis the world’s other major
nations suggests that not only India’s dependence on such investments is among the
highest but also that the fall in construction investments over the past 5-7 years has
been among the highest
(Exhibit 5 above).
Within the construction sector, the drag is primarily attributable to the residential
sector, while non-residential construction investments have done reasonably well
(Exhibit 7-8).
Again, while India’s residential construction investments at ~8% of GDP
in FY19 are the highest compared to other economies included in our sample
(Exhibit 6 above),
the decline in such investments (from 12.8% of GDP in FY12 and
10.3% in FY14) is also among the highest. Only Singapore has witnessed a higher fall
than India in its residential construction investments over the past five years
(Exhibit
9 above).
Notwithstanding all these facts, residential property prices in India have increased at
an average of 2.7% per annum in real terms (6.3% in nominal terms) over the past
five years, which is also much faster growth than many other nations. Real prices of
residential properties in Singapore – with faster slowdown in residential
investments than India – increased at a meager 0.4% over the past five years and
house prices have declined at an average of 0.5% per annum in Indonesia over this
period
(Exhibit 10 above is reproduced in Exhibit 17).
All the economies with faster
growth in house prices have either witnessed a good revival in residential
construction investment (with its share at highest level in past many years) or it has
weakened only marginally.
Combination of very weak
residential construction and
robustly growing house
prices is unsustainable.
This combination of very weak residential construction and robustly growing house
prices is ideally unsustainable. House prices in India thus are eligible to either stay
unchanged or, more ideally, should fall faster – our base case. Otherwise, residential
construction sector should do very well, which means that house prices will grow
much faster.
Exhibit 17:
Change in houses’ real prices and residential construction
6
4
2
0
(2)
(4)
(0.1) (0.4) (0.2) (0.4)
0.4
0.8
Change* in GFCF: Residential construction
1.8
1.9
2.2
0.0
(0.5) (0.2)
Real prices
2.5
0.0
(0.8) (2.5) (0.0)
2.6
2.7
3.0
4.0
4.2
4.5
4.7
0.8
0.9
0.0
0.0
0.0
0.0
(0.3)
(0.4) (0.2) (3.5) (0.1) (0.2)
(1.2) (0.5)
* Change in the latest data (2018/2019) vis-à-vis highest in the past five years (0.0 implies that residential construction is at 5-yr high)
# Data for total construction investments
Source: Bank for International Settlements (BIS), OECD Statistics, CEIC, MOFSL
18 February 2020
9
 Motilal Oswal Financial Services
Although the process of
such adjustment will be
highly painful, the other
outcome would be a
prolonged slowdown.
Falling house prices is definitely a painful process – an episode that we have seen in
many developed nations during the past decade or so starting 2006-07. As the value
of collateral starts falling, negative equity may occur, making the borrowers to avoid
making payments on their mortgages. Not only lower prices make the investment
market for the properties unattractive, but the rising default risks on the existing
loan portfolio make the situation even difficult. Economic activity will also be
adversely affected during the process. Although the process of such adjustment will
be highly painful, the other outcome would be a prolonged slowdown.
The second key conclusion from our analysis is that after witnessing some growth in
FY18 and FY19 (at least partly supported by very weak period from FY14-FY17),
India’s construction investments appear to have weakened once again sharply in
FY20. Although the official data is released only annually with a considerable lag of
10 months, several proxies – such as cement production, steel consumption, IIP for
NMMP and collection of ‘stamps’ & registration fees’ by states – confirm renewed
weakness in the sector in FY20.
Finally, the details of collection of ‘stamps’ & registration fees’ by states confirm
that the weakness in the construction sector is majorly attributed to the largest (or
Tier-I) states. Growth in ‘stamps & registration fees’ moderated from 15.3% in
9MFY19 to only 4.5% in 9MFY20 for the five largest states (which account for over
50% of total receipts), while growth has eased from 19% to 10.5% for the other 13
states. Maharashtra (MH) and Delhi (DL) are the two states that would be most
affected by this slowdown, as ‘stamps & registration duty’ accounts for more than
10% of their total receipts
(Exhibit 18).
After witnessing some
growth in FY18 and FY19,
India’s construction
investments appear to have
weakened once again
sharply in FY20.
Maharashtra (MH) and
Delhi (DL) would be most
affected by this slowdown,
as ‘stamps & registration
duty’ accounts for more
than 10% of their total
receipts.
Exhibit 18:
How important is ‘stamp duty & registration fees’ from states’ finances perspective?
(% of total
receipts)
Stamps & registration fees
10.8
10.6
4.1
4.8
3.2
2.0
0.1 0.4
5.9 6.1
6.1
4.1
0.8 0.6 0.9
3.4
0.1 0.2 0.0 0.0
1.2 1.1
4.0
2.6
0.3
5.9
4.7
4.8
3.3
0.4
4.0
4.7
AP AR AS BH CT GA GJ HR HP JK JH KA KL MP MH MN MG MZ NG DL OD PD PB RJ SK TN TS TR UP UK WB ALL
Source: Budget documents, CAG, RBI, CEIC, MOFSL
18 February 2020
10
 Motilal Oswal Financial Services
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
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Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations,
is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary
company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on
www.motilaloswal.com.
MOFSL
(erstwhile Motilal Oswal Securities Limited - MOFSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of
India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its
stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member
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http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf
Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at
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MOFSL and its associate company(ies), their directors and Research Analyst and their
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MOFSL has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOFSL and / or its
affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOFSL may
have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial
holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income
from clients which are not considered in above disclosures. Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only.
While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.).
MOFSL also earns DP income from clients which are not considered in above disclosures.
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This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be
altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is
based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from
publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made
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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research
analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement
Companies where there is interest
Analyst ownership of the stock
No
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and
Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity
and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views.
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This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities
and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal
Oswal Financial Services Limited(SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong
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only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction
where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in
Hong Kong.
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
18 February 2020
11
 Motilal Oswal Financial Services
For U.S:
Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state
laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934
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defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on
by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in
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interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered
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securities held by a research analyst account.
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as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110)
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distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose
and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes
investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions
expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific
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necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its
own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those
involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty,
express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this
document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior
notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their
directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They
may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
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subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.
CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022
7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:
ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration
No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,
NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered
through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk
Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company
Law Tribunal, Mumbai Bench.
18 February 2020
12