In a budget devoid of a singular big-impact reform, the government has spelt out an initiative that will bode well for investors — asset monetisation of central public sector enterprises (CPSE) through the medium of REITs, that is, Real Estate Investment Trusts.
REITs, as anyone watching the country’s rapidly-evolving investment space would vouch, are now an important component of investors’ portfolios.
High-net-worth individuals can invest directly in REITs, while smaller, retail investors can acquire a taste for the same through mutual funds. Among the latter are multi-asset allocation funds, which can, by mandate, invest a critical part of their assets in these securities.
REITs, I believe, will help unlock a lot of value for prominent state-owned undertakings. A number of government enterprises hold real estate in India, which can be utilised efficiently in order to unleash their potential in a competitive manner.
Ergo, the finance minister gets a thumbs-up for identifying this as a window of opportunity. The FM, in fact, deserves a special mention for declaring her intention to set up an ‘infrastructure risk guarantee fund’ — such a body will be in sync with the public sector’s move towards advancing stakeholders’ interests.
The Budget may indeed be a shot in the arm for new financing instruments, especially those aimed at improving public infrastructure.
In fact, InVITs (that is, Infrastructure Investment Trusts) have been mentioned separately along with REITs. Both instruments may well occupy a greater share of investors’ wallets in the days to come. I am specifically referring to the need for funding public infrastructure here.
The Budget, incidentally, has clearly underlined the government’s plan to proceed on this front.
For the record, an approximate 8 per cent increase in public capex has been mentioned — to ₹12.2 lakh crore, up from about ₹11 lakh crore last year. This represents a strong uptrend from the ₹2 lakh crore or so done in fiscal 2014-15. To quote the FM, the latest budget will help the authorities “to continue the momentum”.
And that is a crystal-clear enunciation of the government’s overall objective.
Why is asset monetisation so significant for India? The public sector, as everyone will no doubt agree, holds considerable assets in terms of land and other parcels of infrastructure. Over the years, large state-controlled entities have rationalised their holdings.
Bringing the latter a few steps closer to the market will be vital. Investors, including those who have already acquired a taste for CPSEs, will gain. This will be relevant for those who want ETFs (that is, exchange-traded funds) for investments.
Patient allocators, in fact, should wait for further news on this front — the FM has mentioned the creation of “dedicated REITs”. This, however, has not been clearly defined; so the fine print is yet to be read.
Lastly, for REIT watchers, I have three quick points:
- Will such Investment vehicles be different from the current batch of REITs?
- Will investors be incentivised to allocate to this exciting asset class?
- How will returns from the same be benchmarked efficiently?
Nilanjan Dey is director of Wishlist Capital