Infra offers an opportunity for stable, dependable returns: Nikhil Naik, Eredene Infrastructure

Many stock market pandits swear by companies building roads, ports and railways broadly described as infrastructure sector, but their shares have underperformed the broader market in the recent bull run. Investors are discovering that infrastructure projects are taking more time than expected , costs are shooting up and regulatory approvals are turning out to be hurdles. But Nikhil Naik, chairman, Eredene Infrastructure , which has a $100-million fund for India’s infrastructure companies, is confident investments in the sector will yield 17-20 % annualised returns over 5-7 years. In a chat with Shailesh Menon, Mr Naik talks about the prospects and challenges for the sector . Excerpts:

What is your outlook on infrastructure sector? Are you seeing a slowdown in the sector?

We are very positive on the infra sector in India. We see it as an opportunity for stable and dependable returns. There is a continuing supply deficit in infrastructure in India . To keep up growth, India needs to invest in building and upgrading its infrastructure , especially roads, ports, rail, airports and logistics. We are not expecting any slowdown in flows into infrastructure companies or projects.

Which infrastructure segment will see more inflows?

Infrastructure will get money from investors who are cautious about investments. Infra investments are often dependant on specific features of a particular project rather than the sector it is in. So, it’s difficult to pick a segment that will attract more investment than the other. We see ports and logistics as having a significantly lower risk than other sectors, less capital-intensive and they still share the same supply side shortages as other sectors.

As a strategic investor, are you not concerned about longer-gestation period and project-cost escalation in India’s infrastructure projects?

Long gestation and the attendant cost escalation are always something that we are careful about. It all boils down to managing the causative factors of these issues that one can control.

Do you expect a global slowdown to impact infrastructure growth in India?

India has shown that it has a momentum and dynamics of its own and is less impacted by the economies of developed countries than would ordinarily have been imagined. And the country is experiencing a huge supply side deficit in infrastructure. Thus, external factors will have a lesser impact on infrastructure growth. Government initiatives will also help the sector grow.

What should stock market investors do? Should they invest in stocks of infrastructure companies?

It depends on their investment and risk profile . If they want stable and dependable returns , they should invest in stocks of infrastructure companies.