Investments in the renewable energy, roads, and real estate sectors are expected to touch Rs 17.5 lakh crore over FY26 and FY27, according to Crisil Ratings.
While renewable energy is witnessing accelerated adoption of storage-linked capacities, a sharper focus on monetisation is on the cards in the roads sector, the firm noted. Premiumisation in residential real estate and influx of global capability centres (GCCs) in commercial real estate are driving realignment of offerings by developers. “What remains constant across these three sectors is the strong investment growth. Over this fiscal and next, investments may rise at around 15% annually, reaching around Rs 17.5 lakh crore compared with around Rs 13.3 lakh crore in the preceding two fiscals,” said Krishan Sitaraman, chief ratings officer, Crisil Ratings.
In renewable energy, to address the intermittency of power supply, there is a transition towards hybrid or storage-backed capacities, which facilitates scheduling of power round-the-clock with greater confidence. The country expects to add 75 GW capacity in this and next fiscal, of which hybrids will account for ~37%. This is a massive jump, considering hybrids accounted for ~14% of the capacity additions over the preceding two fiscals.
In roads, which have a significant multiplier effect on the economy, a pick-up in project awarding will be important to revitalise the sector’s growth. For the National Highways Authority of India (NHAI) to reach its previous highs of around 6,000 km per year of awards and execution, a substantial rise in private capital through acceleration in asset monetisation will be essential, Crisil noted. The agency expects the share of monetisation in NHAI’s sources of funds to grow to around 18% in this fiscal and next, compared with 14% in the preceding two fiscal years. “What lends confidence here is a monetisable asset base worth Rs 3.5- 4 lakh crore,” it said.
In real estate, the residential segment is seeing demand normalise after rapid recovery seen following the pandemic. Crisil expects revenue growth for developers to remain steady at 10-12% this fiscal and next. “With volume growth slated to rationalise, realisations will be supported by continuing demand for premium projects. Commercial real estate, too, will see steady net leasing growth of 7-9% this fiscal and next,” said Crisil.
As India continues to remain a cost-efficient market for GCCs and domestic sectors grow at a steady pace, annual net leasing demand is poised to cross 50 million square feet by FY27. However, while the investment trend is expected to continue, the sectors face a set of evolving challenges.
In renewables, timely availability of evacuation infrastructure is critical. To be sure, a significant ramp-up in transmission capacity is underway with a total capital expenditure (capex) of around Rs 1 lakh crore in this fiscal and next, twice of what was seen in the preceding two fiscals.
“These projects may face delays on account of right-of-way issues, delayed approvals or short supply of equipment such as transformers and high-voltage direct current components. Further, as renewable capacities typically take much less time to be set up, transmission capacity may fall short temporarily,” Crisil said.
In roads, monetisation has been a mixed bag in the past with around 35% of the total toll-operate-transfer bundles floated not being awarded. Possible delays in monetisation on account of approvals or mismatches in valuations, can lead to slowdown in sectoral growth.
In residential real estate, new launches outpacing demand could ratchet up inventory levels. Crisil expects inventory to inch up to 2.9-3.1 years this fiscal after achieving a low of 2.7 years in FY24, which may increase the debt of some developers.
For all these sectors, geopolitical risks and their impact on investments in India will bear watching. While such risks can pose growth challenges, the credit risk profiles are likely to be resilient across the renewables, roads and real estate sectors.
“Robust operating performance over the past few fiscals and the consequent strong cash flows, have kept debt levels under control. Further, healthy investor interest, as evident from equity raise as well as asset monetisation, has enabled significant deleveraging of balance-sheets,” said Manish Gupta, deputy chief ratings officer, Crisil Ratings. Cumulatively, around Rs 2.1 lakh crore of equity capital has been deployed in these sectors over the past two fiscals, driven by strong investor participation, supporting the credit profiles of developers and projects.
The emergence of infrastructure investment trusts and real estate investment trusts have also played a crucial role in strengthening credit profiles given their structural benefits such as pooling of cash flows, cap on leverage and strong regulatory guardrails, according to the agency.
“All in all, while investment growth in these three sectors may see some moderation if the risks play out materially, steady cash flows and healthy balance sheets should keep credit profiles resilient,” it said.