The markets are at an all-time high and the macro-economic factors are positive, with the Indian economy projected to clock a 7%-plus growth rate in 2017. The Modi government’s thrust to infrastructure development in the country has brought the infrastructure sector into the limelight. Considering the above factors, is it the right time to invest in infrastructure funds? Let’s find out.
In the last one year, most of the infrastructure funds have outperformed the broader S&P BSE 200 index and Nifty Infrastructure index by 10-20 percent. This is undoubtedly a stellar performance, but the moot point is whether these funds would be able to maintain their performance going forward.
The Union budget 2016-17 had allocated a massive Rs 2.21 lakh crore to infrastructure projects in the country. The government would be building five more expressways, set up 50 new airports over the next three years and upgrade existing airport infrastructure over the next six years.
Apart from the government’s initiatives, the launch of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InITs) in the country would provide a fillip to the development of infrastructure in the country.
All of these developments bode well for the infrastructure funds which can invest in a sector that promises to take the country into the league of the developed nations.
However, the highly leveraged balance sheets of the infrastructure companies are a cause for concern. Also, infrastructure development in India is dogged by issues relating to environmental clearances and land acquisitions that lead to delays in implementation and cost overruns. These hurdles can derail the infrastructure development in the country.
Hence, it is advisable to pick and choose funds that have consistent track record of past performance and have in invested companies that have a clean track record of project implementation.