Infrastructure companies should not be listed on the exchanges, Mark Mobius of Mobius Capital Partners told Moneycontrol.
Rather, he believes investors would be willing to put money in long-term bonds that are tied to the income of infrastructure, such as a bridge or toll road as it would provide good source of long-term income.
“At the end of the day, putting these companies on the market is a problem because the payoff is not very soon and of course in the market they expect daily or at least yearly profits,” said the veteran investor.
Mobius believes infrastructure companies can be excellent long-term income generators.
Infrastructure projects are long-term in nature so building a road or bridge would take time and often these projects do not pay off till 5-10 years after they are constructed. Hence, infrastructure companies cannot be short-term income generators but could generate income in the long-run, the veteran emerging markets investor explained.
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Meanwhile, a challenge in the sector is that the return on capital for companies is lower compared to their cost of capital. Talking about this, Mobius elaborated that the problem arises when a corporate is paying interest on the loan on yearly basis at a time when no income is being generated.
From the stock market investment standpoint, Mobius suggests avoiding infrastructure companies that have high debt and those which borrow capital to finance their projects.
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The Nifty Infra is down 2.6 percent year-to-date (YTD) and is up 24 percent in the past two years. In the past three years, the index has shot up over 50 percent.
The infrastructure sector has continued to be one of the focus areas of the government. The recent Union Budget saw several announcements for the infrastructure space, which is seen providing a fillip to the domestic economy.
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