The Indian infrastructure space has seen significant turnaround—making it appealing to large global investors—and coupled with the void caused by the HDFC Bank-HDFC Ltd. merger, it could be the right time for the bond market to seize the opportunity, according to Crisil.
The rating and research agency said in the last decade, “concerted effort” has been made to address issues plaguing various segments in the infrastructure sector.
“There is better risk sharing in the contracts awarded; concession agreements have been revised to address the bottlenecks that hampered the projects; and heightened role of central agencies as key stakeholders has improved operational performance and consequently investor confidence,” it said.
According to Crisil, long-term contracts ensure revenue stability and visibility.
The introduction of infrastructure investment trusts or InvITs is another positive step that has seen most of the operational assets moving into more transparent structures, with lower leverage and better diversification resulting in improved credit risk profile, it said.
“Given these developments, it is high time for domestic bond market investors to increase the allocation towards infrastructure issuances.”
Bond market investors typically look for stable, long-term investment options, with pension and insurance accounting for 38% of the investments in the bond market, the rating agency said.
“Thus, exposure to debt instruments of operational infrastructure assets fits the bill. What’s more, some of these instruments provide better risk-adjusted returns, too.”