Infra sector to see more investments from government ahead of elections
Historically, the maximum number of infrastructure projects are announced and awarded during the year before the election
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India’s infrastructure sector, particularly highways, renewable energy and urban transport, is likely to see greater government-led investments ahead of the 2019 general elections, investment bankers and analysts said.
There are some sectors within infrastructure, where the graph of investment is already pointing upwards and are expected to do even better until the elections, said Vinayak Chatterjee, chairman at consulting firm Feedback Infra Pvt. Ltd.
“These sectors are renewable energy and transmission and distribution (T&D) within power, and highways, rail and urban metro within transportation. Even preliminary expenses on bullet train and high-speed rail are going to kick in over and above the routine capex of railways, which itself is picking up quite a bit,” Chatterjee said.
Historically, the maximum number of infrastructure projects are announced and awarded during the year before the election. By that logic, the current financial year will see the maximum activity in this sector, according to Sandeep Upadhyay, managing director and chief executive of Centrum Infrastructure Advisory Ltd.
Roads will continue to form a large part of the government’s capital expenditure up to the elections, while renewable energy will continue to see high interest from the private sector, Upadhyay said, adding urban infrastructure projects such as the metro or monorail will see the maximum growth in percentage terms during the current fiscal due to their low base.
“More and more capital expenditure is going to happen on the government balance sheet, because the appetite from the banks to support any private initiative is low as a lot of these private firms are struggling,” Upadhyay said.
Both Chatterjee and Upadhyay do not expect large investments in gas and coal-based power plants, ports and airports.
Since taking charge in 2014, the Narendra Modi-led National Democratic Alliance (NDA) government has put infrastructure development on top of its agenda. Given that private investment in the sector remains muted due to high leverage on the part of companies, government spending on infrastructure has been leading the way to revive the investment cycle.
The Indian government could raise about $11-$14 billion over the next two years through initial public offerings (IPO) and stake sales in government-run infrastructure companies, according to Ambit Capital.
Within the infrastructure space, the government is looking to list nine assets —five in railways (IRCON, RITES Ltd, RVNL, IRCTC and five in defence (Bharat Dynamics, Garden Reach, Mazagon Dock, Mishra Dhatu Nigam Ltd, Cochin Shipyard), Ambit Capital said in a 5 May report.
A potential 25% stake sale in these assets could help the government raise about Rs131 billion over the next two years, it said.
“With the election season approaching, infra will be the talk of the town, once again. Unlike 10 years ago, this time investments could be skewed towards fragmented projects in transportation and urban infra,” the report said.
Another new avenue for the sector to raise funds and reduce sponsor debt is infrastructure investment trusts (InvITs).
All the four InvITs to hit the primary markets in FY18 could reduce the overall debt of sponsor groups by close to Rs130 billion, thereby providing cash flow relief to the beleaguered sector, India Ratings said on Tuesday. These InvITs are by Sterlite Power Grid Ventures Ltd, Reliance Infrastructure Ltd, IL&FS Transportation Networks Ltd and the recently closed issue of IRB Infrastructure Developers Ltd.