Indian infrastructure and real estate investment trusts present a good buying opportunity for investors seeking a hedge against inflation as the nascent market grows, according to a $44 billion wealth manager backed by Bain Capital.
IIFL Wealth Management Ltd. is recommending its clients allocate as much as 10% to the hybrid investments, co-founder and joint Chief Executive Officer Yatin Shah said in an interview.
“We have been proponents of these hybrid assets from the beginning,” said Shah. “They have had a phenomenal track record and there will be many more of these assets being listed.”
Three REITs, which mainly hold commercial office assets, have listed on India’s stock exchanges so far, with the best performer, Brookfield India Real Estate Trust, rising almost 30% in the past year. PowerGrid Infrastructure Investment Trust has gained 19% over the same period, compared with an increase of 5.2% for the NSE Nifty 50 Index.
There are currently 19 infrastructure investment trusts, known as invITs, registered with the Securities and Exchange Board of India, and the number is expected to grow as the government seeks to fund new projects. The Ministry of Finance estimates $1.4 trillion of funding is needed for its National Infrastructure Pipeline through 2025, with 21% expected to come from the private sector.
India’s headline inflation rose to an eight-year high in April and the central bank is expected to increase rates by 40 basis points when it unveils the monetary policy on Wednesday, according to a Bloomberg survey of economists.
REITS and invITs provide both regular income and capital appreciation, and offer an added hedge against inflation because contracts can be re-negotiated during inflationary periods, according to Shah.
Vivek Rathi, director of research at Knight Frank India, shares Shah’s bullish outlook for REITS, pointing to the strong performance of commercial real estate even during the coronavirus pandemic. As office occupancy rises and rental income goes up, they will continue to benefit, he said. As per government regulations, a minimum of 90% of rental income should be distributed to investors.
“Even during the peak of the pandemic when occupancy in office parks was as low as 10%, rents were paid on time,” Rathi said. “This continued to inspire confidence. Especially when equity and gold are underperforming, REITs look very attractive.”