The real estate and infrastructure investment trusts are poised to double their assets under management to over ₹20 trillion by 2030, as domestic institutions tap only a fraction of their allowed exposure to the asset class, according to a report by Avendus Capital.
Mutual funds (MFs) and insurance companies alone are projected to deploy ₹4.6 trillion and ₹3.2 trillion, respectively, into Reits and InvITs over the next five years, with pension funds adding another ₹2.2 trillion, the investment bank said on Monday. Domestic institutional investors (DIIs) have so far used just 7.5% of their regulatory headroom for these instruments, leaving an untapped pool of ₹7 trillion.
The market, which is in its ninth year, counts 32 listed trusts with a combined assets under management (AUM) of ₹10 trillion and market capitalisation of ₹5 trillion. Avendus sees an additional ₹11.6 trillion flowing in from MFs, insurers, pension funds, foreign investors, retail participants and corporate treasuries by 2030, along with an annual primary market opportunity exceeding ₹1 trillion and two to three IPO listings each year from this year.
New asset classes such as data centres and wider retail participation are expected to drive the next leg of growth, even as expansion into new Reits remains constrained by a shortage of mature office and retail portfolios.
"With the regulatory environment becoming more conducive and new pools of investor capital attracting these asset classes, the growth runway for Reits and InvITs is significant. At a time when investors globally are reassessing portfolio construction amid structurally higher interest rates, stable, income-generating structures such as Reits and InvITs are emerging as one of the most significant long-term opportunities in India’s capital markets," Gaurav Sood, managing director and head, equity capital markets, Avendus Capital, told Mint.
Growth drivers
There are currently six listed Reits in India, including five office and a single retail Reit. The most recent listing was by Bagmane Prime Office REIT in May, which was subscribed almost 25 times, attracting the highest number of investor applications ever for a Reit IPO in the country.
In May 2017, IRB InvIT Fund was the first-ever InvIT IPO focused on toll-road assets.
Gaurav Arora, managing director and head, infrastructure & real assets investment banking, Avendus Capital, said, “The growing pipeline of monetisable infrastructure and real estate assets requires massive pools of long-duration capital. Reits and InvITs are uniquely positioned to financialize cash-generating core assets and recycle capital to develop the next generation of projects."
The next phase of growth in the Reit and InvIT market may be driven by expansion into new asset classes, such as data centres, and deeper retail participation.
While several private InvITs are likely to go public in the coming months, not many new Reits are expected to come to the market, given the paucity of mature office or retail portfolios.
“We will see more additions to existing Reits that will witness growth, Overall, with improved investor education on these asset classes, more pools of capital should come in as it is important to have sticky domestic capital,” Arora said.