Infrastructure as an Investment: A Study of Listed Infrastructure Firms in India

Abstract

The important task of infrastructure provision and enhancement faces ever rising financing requirement in the face of little fiscal space and this points to the pertinence of market based finance. This calls for a pressing need to gauge the sectoral performance of infrastructure and this study takes up this task. The study assesses the risk-return and volatility profile of Nifty Infra, the National Stock Exchange (NSE) sectoral index for infrastructure vis-à-vis the broader Nifty 50 for the time period 2010-2019. The standard financial economic analysis finds the sectoral equity performance of infrastructure to be marginally below that of a broadly diversified index. Further, the study analyses the cashflow and leverage characteristics which are imperative factors in medium term risk return profile of infrastructure stocks. The disaggregated firm level analysis reveals that rent-like return do exist for the biggest players in the sector due to past installed capacities, while the subcontracting mechanism percolates to meagre cashflows for smaller players, partly bearing the greenfield risks.