Can you give us a brief overview into the infrastructure sector?

Infrastructure, being the second largest employer and contributor to economic activity is an important driver of the Indian economy.  The government has also realized the importance of infrastructure in the country’s economic growth and hence taken steps to put in place a world class infrastructure through spending in areas like roads, railways, power, urbanization, clean energy etc. The transportation network is expected to improve multifold as 10,000 km of national highways are planned to be approved in 2016-17 according to the Union Budget 2016. A major capex is expected in the railways in the form of network expansion and development of dedicated freight corridors. From creation of smart cities, use of renewable source of energy, plans to make India a manufacturing hub to improving the transmission network, the current government is leaving no stone unturned to strengthen India’s path to progress. These initiatives clearly underline the pace of infrastructure development in the country in the years to come.

What has been the hindrance in growth for infrastructure sector?

Infrastructure growth is largely dependent on government funding and policies addressing infrastructure development in the country. Lack of reforms, lag in policy implementation and unfavourable macro-economic scenario i.e. high interest rates & inflation has constricted the growth of this sector. The government has recognized these issues and addressed them through various policies/projects viz. 100 smart cities, cleaning of the Ganga, increased spending for infrastructure development etc. Also, on the macro-economic front, India is better positioned than it was few years ago with the RBI for the first time targeting inflation to maintain price stability and maintain a conducive environment. The only thing to look out for now is the implementation of policies and on-ground execution. Once that is addressed we should see massive growth in the infrastructure space.

Does the infrastructure theme deserve a separate allocation in investor’s portfolio? What should distributors tell their clients regarding infrastructure funds?

Infrastructure funds are theme based funds which require an investment horizon of more than five years for the theme to play out. We believe that India is at the cusp of a structural bull run and with increased focus of the current government on development, infrastructure is ought to emerge as a sector to look forward to. IFAs should advice their clients to look at this segment from a long term perspective and take the SIP route which will help to even out the market volatility.

What is the future growth story for this sector?

Infrastructure holds an important position in the overall growth of the Indian economy and needs to be given special impetus in every policy decision. A number of steps have been taken to boost the infrastructure growth in the country. Initiatives like smart cities, housing for all, development of state & national highways, & upgradation of existing roads, dedicated freight corridors, ‘Namami Gange’ etc. are all indicating towards government’s effort to infrastructural development.  Further, the speedier reform process, easing the cost of capital, implementation of GST, etc. will boost India's manufacturing and will speed up the growth momentum. All this put together presents a great opportunity for the players in this sector to grow multi-fold over the years to come.

What is Canara Robeco’s outlook on the infrastructure sector?

We are quite bullish on the infrastructure sector as we think that the sector enjoys intense focus of government on policy formulation & implementation to speed up growth momentum of this sector.  Also, the macro-economic climate in India is slowly stabilizing. The headwinds of the past 2-3 years (high inflation, CAD, fiscal deficit, BoP etc.) are receding. This coupled with RBI’s monetary easing stance presents a favourable environment for infrastructure growth.

We believe that urbanization theme & sectors like cement, roads, railways, water, transmission etc. are likely to benefit from the opportunities available in the sector.

Do share your views on the infrastructure sector!

Also read ‘Will infrastructure funds bounce back?’ Click here to read the article.