“The surge will ride on India’s need for creation of sustainable infrastructure by adding more green power to the energy mix, improving physical connectivity through a denser road network, as well as rising demand for residential and commercial real estate,” it said.
“The underlying demand drivers in these three sectors remain strong, with regular policy interventions fuelling investor interest,” Krishnan Sitaraman, senior director and chief ratings officer, CRISIL Ratings, said while speaking at its annual Infrastructure Summit 2024 held virtually.
“This has also supported healthy credit risk profiles of private players and strengthened their execution and funding capabilities,” Sitaraman added.
According to CRISIL Ratings, the key growth driver for renewables is demand for sustainable energy transition.
“The government’s target is driving up auctions, which has created a strong pipeline. India saw auctions of 35 GW in fiscal 2024, the highest ever in a single fiscal, resulting in a strong pipeline of 75 GW. This will primarily drive implementation of 50 GW capacity over the next two fiscals,” it said.Further, the need for improved physical connectivity in the roads sector has led to healthy awarding over the past few fiscal years, barring the last one. “Strengthened order books of road developers, at 2.5 times of revenue, will support 11% growth in highway construction, which is seen at 12,500 km per year over the next two fiscals,” it added.
CRISIL Ratings said the real estate sector is expected to see 8-10% jump in demand for commercial office space this fiscal and the next while demand for residential real estate will sustain at 8-12% this fiscal and the next, aided by favourable affordability.
“The primary drivers of the same will be global capability centres eyeing India’s large talent pool and competitive rentals, as well as healthy demand from domestic sectors,” it added.
As per the CRISIL Ratings, cumulatively over Rs 2 lakh crore of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation.
“A key enabler here has been the emergence of vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). The capital inflows from investors have helped improve credit profiles of private players, thus strengthening their ability to fund future growth,” it added.
However, there are some risks to watch out for as the growth momentum could be impacted if these play out in a meaningful way, it said.
“In renewables, timely commissioning of storage and storage-linked capacities remains a key risk given their higher tariffs compared with the usual renewable capacities,” it said.
Similarly, the moderation in government budgetary allocation to the roads sector could be a risk. “Amendments in the build-operate-transfer (BOT) toll model concession agreement have been made to increase private participation. However, improvement in traffic estimation accuracy and increase in willingness of lenders to fund BOT toll projects will bear watching,” it cautioned.
“In real estate, while reduction in inventory in recent years has added to the resilience of the sector, discipline in new launches and, consequently, the impact on inventory going ahead will remain monitorable,” it added.