India finds a silver lining in ‘Brexit’ as there has been a surge in demand for Indian corporate bonds among UK based investors, with their preference shifting towards to safer assets, Indian masala and green bonds are the new flavours of the season. Investors’ appetite for Indian renewable & conventional energy and road sector see an increase with the government focusing strongly on infrastructure development.

UK based investors also see bounty for Indian trade and commerce as Britain contemplates to trigger Article-50, a formal process of leaving the European Union. Once it’s triggered, a two year period will commence in which official negotiations will be undertaken. However, there is a fierce argument over when should the procedure be started.

India - United Kingdom trade relations are expected to grow stronger going forward, with UK becoming one of the largest investors into the country, while India is also emerging as one of the biggest source of foreign direct investment for the UK.  India, being the fastest growing economy in the world, is expected to create opportunities for local consumers and British exporters. UK based companies are seen playing an important role in ‘Make in India’ campaign. Trade opportunities for UK business into India are seen in sectors such as infrastructure, advanced engineering and manufacturing, life sciences and healthcare, digital innovation, and skills and education.

As the UK based investors shift to their preference to safer assets, there has been a surge in demand for Indian corporate bonds. Masala bonds or rupee-denominated bonds, issued by Indian companies, have caught the fancy of investors. The rupee’s recent stability and the high yields of the bonds have added to investors’ attraction, however in these bonds, investors bear the credit risk, currency risk, and rates risk. HDFC was the first in the space; it raised Rs 3,000 crore in July, followed by state-owned NTPC that raised Rs 2,000 crore and Adani Transmission Rs 500 crore. The green bonds have also found investor’s interest, Greenko have recently raised about Rs 3,350 crore.

UK based investor appetite for Indian renewable & conventional energy also see strong traction post Brexit, as the government increases its thrust on renewable sector. Businesses are seen making a beeline to capture a slice of renewable space, as India looks to increase its share of renewable sources of energy to 40% by 2030 of the energy mix.       

Renewable energy is fast evolving source of power in India.  Wind energy is the biggest source of renewable energy in India, accounting for an estimated 60% of total installed capacity. The government has envisioned plans to double wind power generation capacity by 2022, and also increase the solar power generation capacity addition target by five times by 2022.

The renewable energy sector is going through some consolidation phase, with mergers and acquisitions in sight. The acquisition of Welspun Energy assets by Tata Power’s renewable arm, and China Light Power coming as strategic partner for Suzlon Energy’s solar power project in Telangana are two of the recent developments hinting towards consolidation.

However, Indian power sector, which includes renewable and conventional source of energy, continues to face challenges in terms of financing. The government continues to remain an important investor for financing power sector in India. Private investment has also been envisioned as source of financing for projects through public-private partnerships (PPPs) model. Power sector financing has seen considerable expansion over recent years, such as sale of several operational projects, debt restructuring, increase in bond issuance, refinancing of projects, etc.

Opinions expressed by the Contributors are their own and do not reflect any opinion of IL&FS Financial Services on the said subject

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