Rating agency CRISIL Ratings said that a “sizeable growth” is expected in the AUM of Infrastructure Investment Trusts in the road sector. It expects to reach Rs 3.2 lakh crore by March 2026 at 68% growth rate, which would rise from Rs 1.9 lakh crore of AUM at September 2024 end. The growth will be driven both by entry of new InvITs as well as diversification from existing portfolios. Let’s break down factors that drive such growth and therefore the play out in the road infrastructure market.
Important Growth Drivers in the Road InvITs AUM by 68%
- Addition via new assets
Existing road InvITs will remain the growth driver for AUM addition by way of acquisition of new assets. According to CRISIL Ratings, the pipeline assets to be acquired by existing road InvITs in the following year are approximately Rs 55,000-60,000 crores. Those will further enhance their respective portfolios and AUM.
- Monetization by NHAI and Road Developers
Monetization of road assets by NHAI and road developers is another significant contributor to growth. This monetization will add an additional Rs 50,000-55,000 crore to the AUM of road InvITs. This is an important constituent in the expansion as it introduces a significant amount of capital to the sector, which then enables further investment and growth.
- New InvITs
Along with the acquisition of assets and monetization of the same, new InvITs would be introduced in the following years. The new addition will infuse nearly Rs 20,000-25,000 crore in the totality of AUM for the road sector. This new addition shall further create investment avenues with the help of new InvITs and thereby the sector expansion.
Diversification: The Roadway to Stability
Diversification is one of the key drivers that will ensure long-term success and stability for road InvITs. Growth in AUM will come hand-in-hand with a drive to diversify both geographically and by concession type. This is essential in reducing the volatility and enhancing resilience when faced with local disruptions. Here’s how diversification plays a role:
- Geographical Diversification
Road InvITs are highly benefited through diversifying their portfolio across different geographies. Geographic diversification allows the InvITs to tap demand emanating from ports, tourist destinations, major cities, and industrial hubs. Spread of investments across geographies reduces the risk that would result from local economic decline or traffic congestion-related disruptions, thereby giving a more stable revenue stream.
- Concession Type Diversification
While currently, toll roads form more than 85% of the AUM of road InvITs, this share will go down to around 75% as the portfolio evolves. This would be on account of assets coming in under HAM that offers a different type of revenue flow. This would bring in better balance in portfolios of InvITs in terms of growth potential and stability of cash flow.
Impact of Hybrid Annuity Model (HAM) Assets
The third is that HAM projects will come into road InvITs. HAM assets are relatively less sensitive to the peaks and troughs of traffic flows, and thus provide a predictable cash flow, which makes them very attractive for road InvITs, which want to diversify their portfolios and improve stability. With inflation and interest-rate hedges factored into HAM contracts, these assets provide additional financial cushioning. The incorporation of HAM assets is also likely to make cash flows from road InvITs more robust during periods of turbulence in the market.
Leverage and Credit Quality: Strike Balance
This is thrilling about AUM growth but challenges in managing leverage remain a challenge. March 2026 will also ensure road InvITs have a healthy average of less than 49 percent. This would marginally increase from the expected level at September 2024 at 44 percent as several of the acquisitions would have to be funded using the related debt. But, no strong credit quality of the overall entity is likely to follow from these: as they are maintained at the higher level of operational capability throughout.
Conclusion: Vibrant future in Road InvITs.
There is expected to be major growth in Infrastructure Investment Trusts in the road sector going forward into the next two-three years. Strategic acquisition and monetization of asset combined with new InvIT will drive growth, and their assets are envisioned to grow by 68% by March 2026. Diversifying across regions and concession type will further strengthen the road investments stability and resilience in the portfolio.
The evolving nature of road InvITs will not only attract investors but also play a key role in the growth of India’s road infrastructure sector. Steady cash flows from toll roads and stability provided by HAM projects will make road InvITs a corner-stone for India’s infrastructure development in the coming years.
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Also read : Crisil Report : More than 90% of MoRTH projects under HAM in India are on Track