Having made infrastructure a priority in its mandate, the Modi administration now faces a challenge in meeting India’s $1tn in infrastructure needs. With only half of this figure expected to come from the Indian government, demand for financing from the private sector is high. In a publication written by US think-tank Council on Foreign Relations, it was estimated that private sector financing in the period 2007 to 2012 amounted to $225bn, a figure which will need to grow in order to fill India’s current infrastructure gap.
Equity investments in India rely heavily on foreign capital, which is unsurprising given that most domestic players prefer infrastructure debt transactions. Nonetheless, interest in Indian infrastructure from domestic fund managers remains high, as the proportion of domestic fund managers out of all Asia-Pacific-based managers investing in India has increased from 68% in February 2014 to 74% in February 2015. Estimated dry powder of India-based fund managers has also increased by 36% from a year ago to $192mn in February 2015. In addition, India-based managers have been targeting more capital per fund in recent times; funds currently on the road target an average of $812mn per fund, higher than the all-time average of $415mn. One of the biggest funds in market is IL&FS Infrastructure Debt Fund, a private fund targeting $2bn of capital to invest in Indian infrastructure debt.
Preqin’s Infrastructure Online service currently profiles 56 India-based institutional investors that invest in infrastructure. Ninety-two percent of these investors are interested in South Asia, of which India is the primary market. Of the 56 India-based investors, 72% invest via unlisted funds, while 49% utilize direct investment routes. This compares with 89% of Australia-based investors that utilize the unlisted fund route, implying that the prominence of private infrastructure funds in India could grow as the market matures. The average proportion of all Asia-Pacific-based investors that invest in unlisted infrastructure funds is also higher than that of India-based investors, at 79%.
India-based insurance companies account for a substantial 27% of India-based investors that are active or are considering investments in the asset class. Given the important role of insurance companies in Indian infrastructure, it is encouraging to note that their average allocation to infrastructure has increased from $452mn in February 2014 to $535mn in February 2015. A prominent insurer investing in infrastructure is Life Insurance Corporation of India. The life insurance company invests via unlisted funds and direct investments, and is also a major provider of debt financing to infrastructure projects. Life Insurance Corporation of India’s unlisted commitments include Golden Gujarat Growth Fund I and IL&FS Infrastructure Debt Fund.