Introduction: InvITs in Focus
Infrastructure Investment Trusts (InvITs) are a relatively recent addition to the Indian capital market landscape. They offer investors a hybrid investment option—combining the steady income of fixed-income instruments with the potential for capital appreciation seen in equities. In the current investment environment, with India entering a more accommodative interest rate cycle, InvITs present a compelling case for inclusion in portfolios, particularly those focused on income generation and lower volatility.
This piece delves into the case for power-based InvITs—with a specific focus on IndiGrid InvIT and PowerGrid InvIT—as attractive investment opportunities in the current macroeconomic setup.
Understanding InvITs: Yield, NAV and Growth Potential
Distribution Yield remains the cornerstone of an InvIT’s attractiveness. Regulatory mandates require InvITs to distribute at least 90% of their cash flows to unit holders, making yield a direct function of the operating performance of underlying assets.
Another important metric is Net Asset Value (NAV). InvIT units trade on the stock exchange, and their prices may reflect a premium, discount, or parity with their NAVs depending on historical performance, investor perception, and forward-looking prospects.
However, it’s crucial to note that distribution payouts are not fixed. They can vary depending on business dynamics such as revenue agreements with key tenants or changes in asset cash flows.
InvITs vs REITs: What Sets Them Apart
While Real Estate Investment Trusts (REITs) focus on income from real estate assets, InvITs invest in operating infrastructure assets such as power transmission lines, highways, and telecom towers. Power transmission InvITs, in particular, offer greater certainty of cash flows due to regulated returns and long-term contractual frameworks.
The Yield Premium: InvITs vs Government Bonds
The most significant comparative factor in today’s context is the yield spread over government securities. With the 10-year Indian government bond yielding around 6.5% pre-tax, power-based InvITs offering 10-11% yields become notably attractive, especially considering potential capital appreciation if yields compress in a falling rate environment.
Sectoral Outlook: Power Transmission vs Other Infra Sectors
Among infrastructure sub-segments, power transmission stands out for its predictability and regulatory clarity. Unlike road projects that are often exposed to political and logistical uncertainties, transmission projects benefit from long-term contracts and stable cash flows. This makes them ideal candidates for steady income generation and less prone to macro-level disruptions.
Stock-Specific Commentary
IndiGrid InvIT
We estimate a distribution per unit of INR 15 for the current year, translating to a yield of approximately 10.5% at prevailing market prices. The anticipated decline in interest rates, prompted by the RBI’s accommodative stance, creates a supportive backdrop for potential capital appreciation.
IndiGrid has demonstrated a consistent track record of growth, underpinned by strong management and strategic acquisitions. The recent onboarding of marquee investors as sponsors further strengthens future growth visibility. Given its combination of solid governance, attractive valuation, and dependable yield, IndiGrid remains our preferred pick in the power transmission InvIT space.
PowerGrid InvIT
This InvIT has undergone a significant correction in recent years, largely due to a halt in asset transfers from its sponsor, PowerGrid Corporation. This development has weakened growth visibility and forced reliance on reserves to meet a promised INR 12/unit distribution.
Given the changed circumstances, we forecast a more conservative INR 8/unit distribution for 2025. Even in this scenario, the yield remains at an attractive 10.5%, highlighting strong risk-reward potential. Should government-led monetisation plans resume, distributions could recover to INR 9-10/unit, creating scope for rerating.
Despite current headwinds, PowerGrid InvIT remains an attractive yield play with repricing potential if macro or policy tailwinds emerge.
Conclusion: Compelling Yields, Low Correlation, High Stability
In a market grappling with volatility and shifting global narratives, India’s shift to a lower interest rate regime is not yet fully reflected in asset prices. InvITs, especially in power transmission, offer a rare combination of high yield, capital protection, and low correlation to global macroeconomic events. With relative valuations and policy direction in their favour, these instruments deserve a close look from yield-seeking investors.
Disclosure: We have built positions in IndiGrid InvIT and PowerGrid InvIT in March/April 2025.
