Realty and infrastructure are two sectors that play a pivotal role in the development of an economy. As these sectors mature, they will be bellwethers of employment and productivity, says IIFL's Harshita Jain.
By Harshita Jain
As IRB InvIT makes its stock market debut, the listing of the first Investment Trust is a harbinger of a huge unexplored platform for Indian investors. The issue was oversubscribed 8.6 times, indicating the investors’ huge appetite for this new investment vehicle.
Realty and infrastructure are two sectors that play a pivotal role in the development of an economy. As these sectors mature, they will be bellwethers of employment and productivity.
Indian economy has always been abundant in labour and enterprise; however, there is a dearth of capital. While the NITI Aayog had estimated requirement of US dollar 1 trillion investment in infrastructure in the twelfth five-year plan (2012-2017), Indian economy could mobilise only a fraction of the same.
Today, as India stands on the cusp of unprecedented growth, propelled by significant reforms and a stable political scenario, our capital requirement is much higher and infrastructure still woefully inadequate.
Enormous investment is required in power, transport, port, water and sanitation, communication and social infrastructure for the economy to sustain accelerated pace of economic growth and lift people at bottom of the pyramid, out of poverty.
Similarly, huge investment in housing is required to achieve our prime minister’s mission of ‘housing for all by 2022’. Besides housing, real estate sector in a growing economy like ours needs large investments in retail malls, hotels, and commercial offices.
Long-term funds required for infrastructure and real estate, cannot be met by banks and underdeveloped corporate bond market. This is a key reason why Indian economy has grown at a pace much lower than its potential. Such long-term investments require specialised and customised instruments.
An InvIT/REIT are investment vehicles similar to a mutual fund. They pool money from several investors and invest it in real estate and infrastructure assets.
In fact, globally, InvIT and ReIT have been very successful vehicles for mobilising long-term capital for infrastructure and realty. US Market capitalisation for ReITs is over US Dollar 1 trillion already. Japan, Singapore, and other markets have also been highly receptive to this asset class.
However, from the time SEBI first published the draft regulations for Investment Trusts in India, it took almost ten years for the first trust structure to get listed.
However, the good news is that government has commendably removed major hurdles and the policy framework is now robust.
This new investment vehicle is set to boom. Within a month, we are likely to witness two or three InvITs making their way to the bourses. Thankfully, IRB InvIT priced its IPO offering attractively, leaving enough on the table for investors.
This new investment product marks a landmark in the evolution of Indian financial markets which could not have come at a better time.
The economy is roaring and is ready to take large investments. Banks, particularly PSUs are reeling under NPA pressure and likely to steer clear of long-term risk. Corporates are looking to grow rapidly without swelling their balance sheet.
Investors are looking for long term stable returns and protection from the risk of falling interest rate on fixed income instruments.
Investment Trusts are a win-win for investors, developers, and the nation.
For individual investors, they provide affordability combined with easy liquidity. The dual advantages of regular income generation along with high growth potential make REIT/ InvIT an attractive investment avenue.
For institutional investors like mutual funds, insurance, and pension funds, this is an important avenue to diversify their asset base and increase yield.
Opening up of real estate and infrastructure to structured private investment will release locked up capital for developers and also encourage them to take up larger capital intensive projects.
Investment Trusts provide an avenue to raise long-term capital without diluting for equity. It allows developers to leverage their capital a lot more with asset light model.
For the economy, it is a huge mobilization of capital without burdening the banking or financial system. It improves transparency and allows for professional management of the sector.
It also helps the government finance critical sectors and augments its revenue. India’s under-capitalized infrastructure and real estate sector have a shot in the arm. Their increased contribution to the economy will help accelerate the GDP growth.
These new products deepen and diversify the financial markets and also encourage the inflow of foreign private investment which leads to the sustained growth of the economy as a whole.Disclosure: The author is Fund Manager, IIFL Wealth & Asset Management Ltd. The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.