Insights

MPC Expectation

The rate hike by the MPC was on expected lines. The rate hikes by the fed and soaring food and energy prices pose a challenge to emerging economies including India. Withdrawal of the accommodative stance is an indication of the fact that the bigger challenge for the RBI is controlling inflation and keeping it within the tolerable range.

The rate hike by the MPC was on expected lines. The rate hikes by the fed and soaring food and energy prices pose a challenge to emerging economies including India. Withdrawal of the accommodative stance is an indication of the fact that the bigger challenge for the RBI is controlling inflation and keeping it within the tolerable range.

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Institutional Investors investing in under-construction projects and domestic retail capital participating in operating and stabilized projects is key to infrastructure development.

Infrastructure Funding Gap 

The answer to the success of the NIP lies in institutional investors backing projects at the development stage of their life cycle, while domestic retail investors participate in the secondary market for operational and revenue generating assets.

At the heart of the government’s plans to make India a $5 trillion economy, lies the timely completion of 9,364 projects valued at approximately $1.9 trillion projects lined up under the National Infrastructure Pipeline (NIP) 2019-25. In particular, the success of India’s manufacturing sector and the focus on “Make in India” are directly influenced by how strong the backbone of India’s infrastructure is built. However, the biggest challenge to implement this pipeline might be the huge financing gap, which is estimated to be more than 5 per cent of the GDP. To bridge the gap in infrastructure development, access to the massive pool of global institutional capital for under construction projects is key.

To its credit, the Government has left the field wide open for the private sector to seize up this once in a lifetime opportunity and complete these projects on a mission mode.  However, it is a no brainer that domestic capital – both the public and private sector put together – may find it difficult to meet the funding requirement of this quantum.  With an annual investment requirement of approximately INR 1.4 trillion (BE 2022-23), it is probable that conventional sources of finance may face a shortfall in meeting this massive funding need. Neither the government with its borrowing program of over INR 14.31 trillion in the current fiscal, nor the domestic institutional investors could match such a massive demand for finance to fund the infrastructure pipeline, leaving behind a huge funding gap to the tune of 5 per cent of the GDP.

The Government’s hands are tied as it is already straying away from its fiscal glide path risking slippages in sovereign ratings. On the other hand, a handful of domestic financial institutions which are into long-term project financing might not have the capital required to meet the funding requirement to complete these projects. Thus, a way forward to solve this financing puzzle may be to tap into the massive pool of finance from global endowment funds, SWFs, pension funds, insurance funds etc. that remain abundant at a global scale despite major central banks’ pivot to policy normalization and repeated hikes in the interest rates.

Interestingly, there are silver tints in the cloud. Firstly, infrastructure projects in India offer a right fit into the investment thesis of global institutional investors given their steady long-term revenue models and reduced volatility. Secondly, foreign investors such as infra-focused funds, insurance companies and pension funds, who look for opportunities to invest in long-term assets have shown keen interests in investing in such assets as evident from the success of ReITs and InvITs. Therefore, a robust pipeline of viable projects in the infrastructure space will indeed lure them to double down on India’s evolving infrastructure growth story.

Even though the pension funds and sovereign wealth funds are investing in India, they are investing in completed and operational assets which are already revenue generating. However, to unleash the maximum potential which can be derived from foreign capital, the focus should shift towards deployment of these funds in projects in their development stage. With significant enhancement in the concessionary framework, if developers package projects in a manner which mitigates risks for capital providers, under construction projects might appeal to foreign investors strongly. Additionally, with opportunities in the secondary market for stable and operational projects being limited, international investors should look for participation at an earlier stage of the project’s life, to secure long-term revenue generating projects for their portfolio. Retail investors, family offices, HNIs may invest into operational assets with low leverage and these assets could give investors the potential to earn higher returns without taking on additional risks. Hence, this route may prove to be a win-win for all; fast-tracked infrastructure development in the economy, rewarding long term investments for global investors and risk mitigation in the investment portfolios of retail investors in our country.

Nevertheless, India may turn its infrastructure story inside out if developers are able to undertake successful financial engineering and structure appealing financial instruments for institutional investors. If this is achieved, NIP may be considered as a ‘mission accomplished’ and the country will be breezing close to the $ 5 trillion economy mark.

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With Fed leading the pack in hiking rates and other central banks following suit this month, the stage seems set for RBI to hike rates in upcoming MPC by 35 bps to protect the rupee as well as contain inflation, said Rohin Agarwal, Vice-President at Avener Capital. RBI will have to evaluate the impact of rate hikes going forward and play a balancing act, he added.

With Fed leading the pack in hiking rates and other central banks following suit this month, the stage seems set for RBI to hike rates in upcoming MPC by 35 bps to protect the rupee as well as contain inflation, said Rohin Agarwal, Vice-President at Avener Capital. RBI will have to evaluate the impact of rate hikes going forward and play a balancing act, he added.

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In an interview to ET Infra, Shivam Bajaj, Founder and Chief Executive Officer of Avener Capital outlined that InvITs or Infrastructure Investment Trusts should be made more open to retail investors for directing people’s savings into infrastructure investments.

“As the pace of infrastructure development increases in the country, certain sectors such as roads and highways, transmission and green energy are expected to witness mergers and acquisitions”

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"Indian entities in the existing corporate as well as upcoming startup space are increasingly venturing out overseas to identify new frontiers for growth. The FEMR regulations of RBI are targeted to give desired clarity in terms of an Indian entity extending debt and financial commitment to any foreign entity including its step down subsidiaries."

Here’s how Indian investors will benefit from the revised overseas investment rules.

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"Amidst rising concerns on the ability of global asset classes to deliver satisfactory returns over a longer tenure, global investors have placed their bets on the Indian infrastructure market time and again. May it be CPPIs deal with Brookfield, or Actis buying out Welspun’s USD 775Mn portfolio of road assets, both the deals are a positive sign for all the stakeholders. In conjunction to this, developers might look forward towards bundling and positioning under-development projects to global investors as a potential investment for their portfolio to seek access to an affordable pool of development finance."

CPP Investments bets $1.2 billion in April-June quarter in India PE bets

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On its mission to curb domestic inflation, the RBI has increased the repo rate by 50 bps in the MPC meeting today to 5.4 per cent. The ultimate impact of this decision on the inflationary pressure might be equally dependent upon the supply-side performance of the economy, where the recent dropdowns in the GDP growth estimates by IMF of 80 bps to 7.4 per cent might be seen as a challenge. Hence, it will be interesting to see, how these consecutive rate hikes, keeping in mind the concerning global economic indicators, iron out the path to long term growth for India.

Sensex gains 89 pts, Nifty holds 17,350 as RBI hikes repo rate by 50 bps

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Two critical factors would determine the monetary policy committee’s stand on rates in this meeting, whether Inflation continues to remain beyond RBI’s comfort zone and GST collections as well as whether PMI is looking up even after successive rates hikes by RBI in the initial part of this year which would give it the confidence to continue its “hawkish” stand. This might align market expectations towards a rate hike by around 30 basis points.

RBI’s monetary policy review underway; here’s what analysts see as possible outcome

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“We saw these IPOs get subscribed 100-200x. People were not even looking at the business models; they were investing on the back of euphoria. They were outliers in terms of the amount of liquidity available, but if you fast forward to today and ask me if some of these tech companies would be able to go public today, I would cast my doubts”

“We saw these IPOs get subscribed 100-200x. People were not even looking at the business models; they were investing on the back of euphoria. They were outliers in terms of the amount of liquidity available, but if you fast forward to today and ask me if some of these tech companies would be able to go public today, I would cast my doubts”

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Avener Capital, has constructed a check dam at Vartha Pada Shensari Village in Palghar, Maharashtra. Built in collaboration with Diganta Swaraj Foundation, the 15m long and 3m tall check dam with its storage capacity of 10,000 cubic metres will transform lives of over 200 families and almost 2000 people living in the vicinity by supplying water for domestic and agricultural use.

Avener Capital, has constructed a check dam at Vartha Pada Shensari Village in Palghar, Maharashtra. Built in collaboration with Diganta Swaraj Foundation, the 15m long and 3m tall check dam with its storage capacity of 10,000 cubic metres will transform lives of over 200 families and almost 2000 people living in the vicinity by supplying water for domestic and agricultural use.

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LIC IPO

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“Registration. In the meantime, the process of revising the application form of UGC NET is currently underway. M Jagadesh Kumar of the UGC said that the deadline for submission of applications of UGC NET (UGC NET December 2021 & June 2022) has been extended after receiving”

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