Given the size of the Indian economy and expectations of future growth, infrastructure remains a crucial area of focus for both financial and strategic investors alike. As capital flow gradually picks up in the sector over the last five years and operational assets are bought out, the obvious question is: What next in terms of infrastructure projects?

The last few years have seen a significant focus from a plethora of global infrastructure investors in India, especially in the transportation and energy sectors. The primary strategy has been buying out companies or a portfolio of operational brownfield projects. Sellers of such projects have been motivated by the need to reduce their debt and in some cases carve out non-core assets. Buyers of brownfield assets have been motivated by getting access to assets that are operational, thereby giving them a foothold in the Indian market.

However, as brownfield assets see more capital pursuing them, we see two trends emerging. Firstly, high-quality brownfield assets for sale are fewer now, given the capital inflow over the last few years. Secondly, given the increased competition, from an investor’s perspective, due to the yield compression in brownfield assets, the returns available may not be commensurate to the underlying risk. Therefore, the need for investors to move beyond brownfield assets is one that needs attention. For India, focused investors such as pension funds and private equity funds, the requirement to look beyond brownfield infrastructure assets was in the works for a while. Mainly, extending further out on the risk curve is required to deploy more capital to work. Beyond brownfield assets, investors must now consider assets that aren’t necessarily purely greenfield but are under-construction and close to completion.

The move towards under-construction projects will allow investors access to a larger pool of assets to choose from. Given the still strained balance sheets in the infrastructure sector, opportunities exist that need to be tapped into. The move towards assets that aren’t operational or a portfolio of such assets is a natural progression in the market.