Opportunity to monetise $50-60 bn infra, realty assets: Daga of Edelweiss

The CEO of Edelweiss Asset Management dwells on the Budget proposals and how they will impact various sectors

The recent budget has given a great deal of impetus to infrastructure, offering new sops to infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). Hemant Daga, chief executive officer of Edelweiss Asset Management spoke to Raghavendra Kamath on the budget proposals and how they will impact various sectors. Excerpts:

What is your view on the Budget proposals?

The government has rightly defined its priorities by focusing on infrastructure spending, asset monetisation, privatisation of state-owned companies and incentivising foreign investment. This budget will help India build infrastructure and growth capital in the medium term. The fiscal deficit target of 6.8 per cent for FY22 is reasonable and acknowledges the changed global economic landscape. Bringing it down to 4.5 per cent of the GDP by FY2026 is realistic and creates the fiscal space for more growth-enhancing measures and the transparent disclosures around the fiscal deficit will give investor’s confidence. The economic situation in the country has been improving since September 2020. and India is expected to be one of the fastest growing emerging economy with real GDP growth estimated at 9 – 10 per cent. The measures announced in the budget are expected to provide a further boost to economic activity and help towards propelling India to become a $5-trillion economy over the next four to five years.

The government talked about setting up a development finance institution for infrastructure. What is your take?

One of the key systemic challenges associated with infrastructure projects in India has been the inability of traditional financing institutions such as banks and NBFCs to provide long-term funding to such projects due to asset-liability mismatch and liquidity issues. The creation of institutional structures like the DFI with a capital base of Rs 20,000 Crore (about $3 billion) and a lending target of Rs 5 trillion in three years is a very good initiative which looks to resolve the issue of financing infrastructure projects in the country. By providing finance for infrastructure projects envisaged under the National Infrastructure Pipeline, this will provide the stepping stone for funding infra projects in India. The country had development financial institutions like ICICI and IDBI, which were converted into universal banks, to mobilise retail deposits. The implementation and execution of this proposal would be something to watch out for, going forward.

You have raised an infrastructure fund last year. The government provided a big push to infrastructure in the Budget. Do you expect more opportunities to invest in the sector in coming months?

Our $450 million (Rs 3,300 crore) Infrastructure Yield+ fund is the largest yield-focused infrastructure AIF in India with capital commitments from both domestic and global investors.

The big thrust given to monetisation of operational assets like roads, airports and transmission towers, along with monetisation of infrastructure assets by developers for deleveraging will provide an attractive investment opportunity of $40–50 billion for our yield strategy over the next 4-5 years. The National Infrastructure Pipeline has proposed Rs 111 trillion of investments in the sector through fiscal 2025. Apart from energy and roads, sectors such as ports, airports, railways, city gas distribution and freight terminals have emerged as key focus areas for investments. This presents additional opportunities for our forthcoming funds in this strategy.

How will the sops for InVITs and REITs impact these instruments? Do you expect more such listings?

Instruments like InvITs and REITs have been gaining popularity in India and we expect more listings. These trusts have attracted capital upwards of Rs 2 trillion so far and their potential continues to be high. With tax exemption granted on dividend payments to InvITs and REITs, these structures become more tax-efficient and attractive for investors. Similarly, enabling debt investment from FPIs into these structures will give access to larger pools of debt capital at competitive rates, improving yields for investors seeking alternative investments in a reducing yield environment. The opportunity for monetisation for operating infrastructure assets and commercial real estate in India is huge. We estimate an opportunity of $50–60 billion in these two asset classes over the next 5–6 years.

In which sectors do you see maximum activity on capital markets and PE fronts, post budget?

Higher capex in Infrastructure will create demand in core industries like cement, steel, power generation units and heavy-duty machinery, construction equipment and commercial vehicles. Further, the tax holiday for affordable housing projects will enable developers to cash in on the buoyant demand for such units. Cyclical sectors like cement, steel, auto, metals, real estate are hence expected to witness heightened activity in the capital markets. The other sector under focus is banking, with the government’s decision to create a bad bank, privatise two PSBs and recapitalise banks. Underlying economic recovery is also likely to benefit the banking & financial sector.