Whalesbook
India's Infrastructure Investment Trusts (InvITs) are expanding rapidly, supported by government plans like the National Monetisation Pipeline 2.0. However, this growth hides a key challenge: the country's capital markets are not yet deep enough to fully fund this sector. While Assets Under Management (AUM) and the number of InvITs are increasing, the sector still relies heavily on traditional bank loans instead of exploring the bond market more, hindering efficient funding and financial strength.
Sector Growth Speeds Up
CareEdge Ratings projects InvITs' AUM to increase by ₹1 lakh crore in fiscal year 2026. This follows a doubling of AUM from about ₹3 lakh crore in FY22 to an estimated ₹6.25 lakh crore by FY25. The number of trusts also grew from 11 to 22 in the same period. Projections suggest total AUM could reach ₹7.5 lakh crore by FY26. The National Monetisation Pipeline 2.0 supports this, targeting substantial asset monetization in highways, logistics parks, and railways. Road InvIT AUM is forecast to climb to ₹3.2 lakh crore by March 2026.
Key Sectors Still Dominate
Despite sector-wide growth, AUM remains heavily concentrated. As of March 31, 2025, telecom and road assets accounted for nearly 90% of total industry AUM, with telecom at ₹3.06 lakh crore and roads at ₹2.46 lakh crore. While opportunities exist in areas like transmission, warehousing, and renewable energy, this imbalance highlights a challenge in broadening the investment base beyond these two main segments. Road InvITs now make up 39% of total InvIT assets.
Bond Market Use Lags Bank Loans
InvITs' financial structure shows a continued reliance on bank loans, which account for nearly two-thirds of their total borrowing. Bond issuances, while growing, account for only about 20% of the debt. This reliance on bank credit limits the benefits of greater use of bond markets. India's large bond market offers significant capacity for long-term funding. The current low use of the bond market by InvITs means a missed opportunity for more diverse and potentially better funding terms, and less risk from relying on just a few lenders. This funding gap persists even as assets are deployed quickly.
Retail Investors Still Hold Back
Efforts like lowering minimum investment thresholds to ₹25 lakh aim to attract more retail investors, but their participation in InvITs remains low. Factors like valuation concerns, liquidity issues, and market perception contribute to this. Trading volumes are often concentrated, and the difference between buying and selling prices (bid-ask spreads) can be wider than in more liquid markets. Industry bodies highlight the need for better investor education to bridge this gap. As a result, the sector is largely dominated by institutional investors, slowing the wider ownership of infrastructure assets.
Potential Risks and Funding Concerns
The continued concentration in telecom and roads poses a significant risk. If these sectors face unexpected regulatory changes or shifts in demand, the entire InvIT industry could be heavily affected. Reliance on bank debt also exposes the sector to interest rate changes and risks from concentrated lender relationships. While leverage levels are expected to remain stable at around 49% for FY26, this depends on continued equity raises and valuation gains. The underuse of the bond market represents a missed opportunity for greater financial flexibility and risk spreading. Recent regulatory changes in 2025 aim to improve oversight and investor protection, but their effectiveness against these funding and diversification risks remains to be seen. The weaker performance of road InvITs compared to REITs in 2025 also suggests not all infrastructure segments will succeed equally, highlighting potential asset-specific and sector challenges.
Outlook and Investor Needs
InvITs are expected to continue steady growth in FY26, driven by portfolio expansion and the ongoing asset monetization pipeline. However, the sustainability and efficiency of this growth will increasingly depend on the sector's ability to engage more deeply with capital markets. Strengthening investor protections and broadening the investor base beyond current institutional dominance are crucial for realizing InvITs' full potential. Failing to diversify funding sources and asset types could limit their capacity to support India's infrastructure development goals.