The assets under management (AUMs) of infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) are anticipated to witness substantial growth in the upcoming financial year, with projections suggesting a rise of 15-20% to reach Rs. 7.5-8 trillion.
This surge in AUMs is expected to be primarily driven by the roads sector, which is projected to attract around 75% of the fresh inflows into these investment instruments, as outlined in a recent report. The current fiscal year has already demonstrated strong momentum, with the addition of Rs. 1.3 trillion to the AUMs, half of which has been allocated to the roads sector. Notably, six new trusts contributed to 55% of the total inflows in FY24, while the remaining came from asset acquisitions within existing trusts. The launch of Bharat Highways InvIT marked a significant milestone, with its initial public offering being oversubscribed by 8 times, underscoring investor confidence in these instruments.
InvITs have emerged as pivotal vehicles for the monetisation of highways, with the National Highways Authority of India (NHAI) successfully raising Rs. 15,700 crore through the transfer of 10 stretches to National Highways Infra Trust. This compares favourably to NHAI’s previous monetisation efforts through toll operate transfer (TOT), indicating the growing preference for InvITs as a financing mechanism. Moreover, FY24 witnessed the inclusion of new sectors such as retail malls, warehouses, and renewables into the InvIT and REIT landscape, diversifying the investment portfolio and expanding opportunities for investors. The rising participation of domestic investors, alongside proactive regulatory changes facilitating investments by insurance and pension funds, has further bolstered the popularity of these investment vehicles.
Despite the expansion in AUMs, the rise in leverage, with the debt to AUM ratio increasing from 49% to 70%, has been moderate, indicating prudent financial management by existing trusts. Looking ahead, the growth trajectory of InvITs and REITs is expected to accelerate, supported by a deeper understanding of operating and credit risks among investors and stakeholders, as well as the continued development of debt markets. The proliferation of InvITs and REITs signifies a paradigm shift in infrastructure financing and real estate investment, offering investors diverse avenues for capital deployment and fostering growth across sectors.
