Rising domestic investor demand spurs record secondary trades in InvITs

Until recently, InvITs were largely driven by foreign capital

India’s infrastructure investment trust market is seeing a surge of activity as domestic investors pile in, driving record secondary trades and signalling the emergence of InvITs as a mainstream asset class.

In the last two months alone, seven InvITs, including KKR-sponsored Vertis Infrastructure Trust, Brookfield’s Energy Infrastructure Trust and Edelweiss-backed Anzen Energy Trust, have seen secondary transactions worth almost Rs 6,000 crore, data from stock exchanges shows.

Large secondary trades were also recorded in other InvITs including Cube Highways Trust, NDR InvIT Fund, IRB InvIT Fund and India Grid Trust.

In early September, Vertis saw the biggest secondary trade, so far, in the InvIT space at approximately Rs 2,890 crore. The Energy Infrastructure Trust saw a secondary trade worth Rs 1,802 crore later in the month, stock exchange data shows.

The trades were mostly driven by sponsors such as KKR and Brookfield and global institutional investors selling part of their InvIT holdings.

The strong domestic appetite reflects how InvITs, once the preserve of global infrastructure and pension and sovereign funds, are now attracting family offices, high-net-worth individuals (HNIs) and domestic institutional investors such as insurers, mutual funds and corporate treasuries, seeking predictable, inflation-linked returns, market participants say.

“We have seen strong interest from domestic institutional investors as well as family offices and HNI investors,” said Rahul Mody, co-head investment banking at Ambit.

“InvITs provide exposure to high quality ‘cherry-picked’ operational long-term infrastructure assets, combined with strong governance and robust capital structure.”

Many InvITs have not only provided stable cash flows but also accretive growth from further acquisitions, thus appealing to both yield and growth investors, he added.

Ambit sees investor interest across different infrastructure sub-sectors such as roads, transmission, renewables and warehousing.

Domestic capital rising

Until recently, InvITs were largely driven by foreign capital, with marquee investors such as the Canada Pension Plan Investment Board (CPPIB), Ontario Teachers’ and GIC backing early platforms.

The trend is shifting rapidly. Domestic institutions and affluent investors now account for a growing share of trading volumes.

According to industry observers, InvITs offer annuity-like quarterly distributions, strong credit quality and a degree of inflation protection that is hard to find.

The shift also follows SEBI’s move in early September to cut the minimum investment ticket size for privately placed InvITs to Rs 25 lakh from Rs 1 crore earlier, opening the door for a wider investor base.

InvITs’ steady distribution history, improved liquidity on stock exchanges and a robust regulatory environment have also made them more attractive.

Prateek Jhawar, managing director and head of infrastructure and real assets at Avendus Capital, said domestic investors are increasingly participating in these trades because of their return profile and relative stability.

“Domestic investors are increasingly participating in InvIT and REIT trades given the proven ability of these asset classes to provide superior returns with very low beta,” he said.

Investors are attracted to these names, as their return potential is better than any other fixed income product, which are usually chased in a volatile equity environment

‘Democratised’ infrastructure investing

In a September 24 interview to Moneycontrol, Vertis Infrastructure CEO Gaurav Chandna said InvITs have “democratised infrastructure investing by offering Indian investors stable, inflation-hedged yields with strong governance”.

Infrastructure investing was once an exclusive domain of large global funds but InvITs have made it possible for Indian investors “to own a fraction of infrastructure at the click of a button”, Chandna said.

The product’s evolution — from an experimental structure to a regulated yield vehicle — has given investors the confidence to allocate more capital, he said.

“After a few years of steady distributions and  proven performance, investors have greater confidence in the structure, governance, and transparency of InvITs,” Chandna said.

The road ahead

Large secondary trades in InvITs come at a time when several of these trusts are planning to tap the IPO market.

At least Rs 20,000 crore of InvIT IPOs are being planned , as their sponsors look to expand their investor base to meet future capital needs, Moneycontrol wrote on August 20.

Secondary trades are a way InvITs sponsors test investor demand and valuations for their proposed IPOs.