Infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) are emerging as key vehicles for channelling long-term capital into core infrastructure assets. Currently, there are 34 trusts (six REITs and 28 InvITs) registered with the Securities Exchange Board of India. The ecosystem is also witnessing a significant pivot toward sectoral diversification, with sectors such as warehousing, data centres, power transmission, oil and gas and renewable energy gaining significant scale within InvIT portfolios. Leading InvIT platforms share their perspectives on the current operating environment, growth opportunities, challenges and future strategies. Excerpts…
Pawan Kant
India’s road sector has been central to the country’s economic growth, but its next phase of expansion will depend on how effectively existing assets are monetised, new asset classes are brought into the infrastructure investment trust (InvIT) ecosystem and regulatory constraints are eased. The headroom for infrastructure asset recycling is significant, but realising the full potential will require making the InvIT framework demonstrably more attractive to both asset owners and investors.
The immediate opportunity remains concentrated in national highways. The established project development ecosystem – comprising the engineering, procurement and construction; hybrid annuity model (HAM) and build-operate-transfer (BOT) models – provides a pipeline of assets that can eventually be monetised through InvITs or the toll-operate-transfer route. With the revised model concession agreement for BOT projects, for it to further flourish, there is a need to address the dispute resolution framework — in particular, the restrictions on arbitration for higher-value claims that can leave developers exposed to prolonged litigation and related costs. For institutional investors, predictable and efficient dispute resolution is fundamental to underwriting the several risks associated with infrastructure which can help safeguard the return profile. Reforming dispute resolution and ensuring continued stability and predictability of regulations will be central to attracting long-term capital at scale.
State highways could represent the next frontier, provided states establish clear regulations and properly ring-fence road assets. National highways account for only about 3 per cent of India’s road network, yet carry close to 65 per cent of freight traffic. The balance of the network represents an untapped pool of readily monetisable assets. Even unlocking a small proportion of this network could materially expand the addressable market for asset monetisation and, in turn, provide states with fresh capital to fund their respective capex plans. Ensuring a strong counterparty to the concession, extending central support to state agreements to make monetisable projects bankable, and extending credit enhancement as a viability-gap mechanism could provide the foundation for bringing state-level road assets into structured, investment-grade monetisation programmes.
The opportunity also extends beyond conventional roads. Multimodal transport hubs, digital infrastructure and electric vehicle charging networks could increasingly form part of InvIT-eligible asset portfolios. Railways, too, represent a substantial long-term opportunity: private participation has begun to increase, but the scale of investment required to modernise the network is enormous, and a well-structured concession paired with a monetisable platform such as an InvIT could mobilise large sums of capital.
Progressive policies and a strong regulatory framework will be enablers of growth. InvITs can raise borrowings beyond 49 per cent of asset value only under stringent conditions, which in practice caps debt/leverage headroom for most trusts, even as comparable road assets held by developers routinely support significantly higher gearing, thereby increasing the effective weighted-average cost of capital for InvITs and weakening their competitiveness. HAM developers, which represent an important future pool of assets for monetisation, can also access relatively inexpensive bank funding, and refinance or top up existing debt rather than monetise their assets or recycle capital. This asymmetry affects the overall monetisation ability of InvITs.
The leverage framework therefore warrants reconsideration. While recent steps to permit borrowings above the threshold for capital expenditure and major road maintenance are positive and a step in the right direction, the broader framework still merits a relook: an excessive layering of safeguards can create friction without delivering proportionate additional protection to investors. A more balanced approach to leverage and ring-fencing could improve capital efficiency and accelerate asset recycling.
At the heart of the challenge lies the availability of a steady pipeline of high-quality assets. The National Highways Authority of India has made considerable progress in demonstrating that infrastructure assets can be successfully monetised and recycled. Sustaining the InvIT ecosystem, however, will require a consistent supply of operational, well-structured and financially sustainable assets. Without a reliable pipeline, the sector’s ability to attract and deploy long-term institutional capital will remain constrained.
Ultimately, the reach and pace of the InvIT model will be shaped by three priorities: broadening the asset pool, deepening investor confidence and continued regulatory and policy support. Under Viksit Bharat, India is well poised to position itself as a leading infrastructure investment destination.
“Ultimately, the reach and pace of the InvIT model will be shaped by three priorities: broadening the asset pool, deepening investor confidence and continued regulatory and policy support.” Pawan Kant
Akhil Mehrotra
India’s InvIT market is still at an early stage, with significant potential to unlock capital from mature infrastructure assets. The opportunity lies not only in creating new investment avenues but also in providing greater regulatory certainty, improving investor awareness and accelerating the monetisation of public sector assets.
A key enabler for the growth of InvITs is the increasing availability and diversity of capital. Greater liquidity and rising participation from family offices, high-net-worth individuals (HNIs) and institutional investors are expected to deepen the market. However, investors need greater clarity on the underlying assets and cash flows. Regulatory and policy certainty is particularly important for infrastructure assets, where revenues are often influenced by sector-specific regulatory frameworks. More predictable regulations would translate into more stable cash flows and, consequently, greater investor confidence.
Investor awareness remains a key hurdle. Despite the growth of the InvIT ecosystem, even large funds are not always fully familiar with the structure, its complexities and its risk-return characteristics. A concerted effort by market participants to educate investors could help broaden the investor base and improve liquidity.
The oil and gas sector presents one of the most compelling opportunities. The government’s balance sheet constraints make asset monetisation particularly relevant. While public sector oil and gas companies may have strong cash flows and access to relatively low-cost debt, the government bears the burden of fiscal deficits. Monetising operational assets through InvITs can therefore help recycle capital, reduce pressure on the public balance sheet and create resources for further infrastructure investment.
Within oil and gas, both pipelines and terminals offer significant potential. India currently has around 35,000 km of gas pipelines, and this network will need to expand substantially if gas is to reach consumers across the country. Existing liquefied natural gas (LNG) terminals also represent a sizeable pool of mature assets that could potentially be monetised.
An emerging opportunity is gas storage. While India has strategic petroleum reserves, gas storage has received relatively limited attention. As the share of natural gas in the energy mix rises, the need for strategic gas reserves is likely to increase. One possible model is for an InvIT to own the storage infrastructure while the government retains ownership of the gas, which could then be released during supply disruptions, geopolitical crises or periods of extreme price volatility. Such a structure could create an investible infrastructure asset while strengthening the country’s energy security.
For LNG terminals and other infrastructure assets, long-term contracts can provide an important cushion against market risk. Assets backed by predictable, long-duration contracts are more likely to attract investors seeking stable cash flows.
The InvIT market is also gradually developing a clearer identity. Initial uncertainty over whether InvITs should be viewed primarily as debt or equity-like instruments is giving way to a stronger focus on long-term, stable yields. This is particularly attractive to pension funds, large institutional investors, family offices and HNIs.
There is a strong need to improve liquidity through measures such as appropriate unit sizes in privately listed InvITs, which could encourage greater participation and secondary market churn.
India has only begun to tap the potential of InvITs. A substantial pool of value remains locked in assets owned by central and state agencies. Faster and more structured monetisation could bring these assets into the private investment ecosystem, release capital for new infrastructure and strengthen public sector balance sheets. With greater policy certainty, investor awareness and a larger pipeline of investible assets, InvITs can evolve from a niche financing instrument into a significant engine for infrastructure investment and economic growth.
“Regulatory and policy certainty is particularly important for infrastructure assets, where revenues are often influenced by sector-specific regulatory frameworks.” Akhil Mehrotra
Harsh Shah
InvITs are evolving into an established infrastructure financing vehicle. Yet, the next phase of growth will depend not only on a steady supply of quality assets, but also on greater regulatory alignment, sharper recognition of evolving sector fundamentals and the ability to adapt the InvIT model to emerging asset classes.
Regulatory fragmentation remains one of the biggest constraints facing the asset class. Despite a common InvIT structure, different regulators, including the RBI, the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority, continue to interpret and regulate the vehicle differently.
This lack of harmonisation creates unnecessary complexity for investors and asset owners. There is an urgent need for regulators to develop greater mutual confidence and recognise the safeguards and risk mitigation mechanisms already embedded in frameworks administered by other authorities. Without such alignment, regulatory friction could slow the expansion of an asset class that has otherwise demonstrated considerable maturity.
The investment proposition itself is evolving. While returns vary according to the underlying sector and risk profile, investors increasingly seek a combination of stable yield and growth. For InvITs, distribution yield remains the principal component of total returns. High-quality trusts with visible growth prospects are generally expected to offer yields at a spread of around 100-200 basis points over government securities, while assets with weaker growth prospects may require wider spreads of around 300 basis points. The implication is clear – predictable distributions alone may no longer be sufficient; investors are increasingly looking for credible growth in the underlying asset base.
This becomes particularly relevant as the InvIT ecosystem expands beyond traditional regulated infrastructure. Renewable energy presents a significant opportunity, but unlocking it will require a reassessment of underlying credit risks. The financial health of power discoms has improved materially over the past decade. Discom losses have declined, while sustained economic growth has strengthened consumers’ ability to pay. Electricity tariffs, meanwhile, have not risen in proportion to income growth.
However, these improvements are not always reflected in credit assessments. Rating agencies continue to incorporate legacy risks arising from defaults, payment delays and contract renegotiations from earlier periods. This can constrain the ratings of power assets outside transmission. The consequence is significant. Without a high credit rating, InvITs cannot access higher leverage, limiting distributions and their ability to acquire additional assets.
A reassessment of credit fundamentals could therefore unlock a larger pipeline of renewable assets for InvITs. Breaking the cycle between legacy risk perceptions and current credit realities could be critical to expanding InvIT participation in the renewable energy sector.
At the same time, InvITs must compete with other capital market instruments. When equity valuations are high, asset owners may naturally prefer initial public offerings to InvIT listings. But capital markets move in cycles. As valuations and investor preferences change, InvITs can become more attractive, particularly for mature infrastructure assets seeking long-term capital and predictable cash flows.
Emerging asset classes will further test the flexibility of the existing framework. Data centres, in particular, could become a major opportunity within digital infrastructure. Bringing such assets into InvIT or real estate investment trust (REIT) structures from an early stage could help establish a viable financing ecosystem. There is also substantial untapped potential within the power transmission segment. State utilities collectively hold a significant volume of transmission assets that could potentially be monetised. While central guidelines are already available, state-level adoption remains limited. One of the biggest challenges is the divergence between national asset-monetisation objectives and the priorities of individual state-owned utilities, which may be reluctant to relinquish operational control over strategic assets.
Despite these challenges, InvITs and REITs are among the most successful new investment vehicles introduced into India’s financial markets over the past decade. Their combined asset value has crossed Rs 7 trillion, demonstrating growing investor acceptance. As awareness improves and investors gain greater familiarity with the products, their role in asset allocation is likely to expand.
The next chapter is about moving InvITs from a successful financial innovation to a mainstream capital-market instrument. Achieving this will require regulatory harmonisation, more forward-looking credit assessments, a steady pipeline of quality assets and frameworks capable of accommodating new-age infrastructure.
“InvITs and REITs are among the most successful new investment vehicles introduced into India’s financial markets over the past decade.” Harsh Shah
