FTSE IDFC India Infrastructure Index to Help
Promote Development of Infrastructure
July 30, 2007
R. V. SHAHI
The Union Finance Minister Mr. P. Chidambaram launched a new stock market index
named "FTSE IDFC, India Infrastructure Index" in a brief function at Delhi on
July 24, 2007. FTSE Group (an outfit of Financial Times) in partnership with
Infrastructure Development Finance Company decided to create a new
infrastructure index for the stock market, in relation to the stocks of
infrastructure companies. This series, it is expected, would represent the stock
market performance of such Indian companies as generate major part of their
revenue from infrastructure. This would also provide the investors information
on sub sectors of the infrastructure which deal with Indian financial market and
which have witnessed significant growth in the recent years. Inaugurating the
event at the launch of this new index series the Finance Minister made following
For an economic growth of 4-5% the present infrastructure, in most
cases, would appear sufficient. But we have targeted to grow at the rate of 9%
plus. And the moment we attempt to align our activities with this level of
growth it exposes the weaknesses of our infrastructure all around - road, port,
airport, power, railways in particular. We often compare ourselves with China.
Even Malaysia has made significant progress on infrastructure facilities - good
to support a high level of economic growth.
Money is available. Where we lack is in our preparation for good
projects ripe for investments. This is an area where we need to take immediate
actions on all fronts.
The Government has provided a revolving fund for the States to
prepare projects which could then be considered for investment and development.
With all our policies we are trying to support infrastructural projects in
significant ways. Government is deeply committed to build world class
infrastructure in India.
It would be necessary to promote and encourage good companies
which are engaged in developing and building infrastructure and therefore, the
new series which has been developed by the FTSE and IDFC would obviously enable
investors to have better understanding of the performance of these companies and
therefore support them with investments.
IDFC and FTSE made a brief presentation on this occasion highlighting the
salient points of the new index. For the purpose of this series which would be
tracked by all those who are interested in stock market operation as also those
interested in these companies, the infrastructure has been defined to include
In an informal chat with Shri Deepak Parikh Chairman, HDFC & IDFC and Shri Rajiv
Lall MD, IDFC it was pointed out that housing is a more basic infrastructure for
people and this should also be included in the definition of infrastructure.
Perhaps this will require due consideration.
Under this initiative two new Indices have been developed.
The first index will cover the entire eligible universe of infrastructure
companies in India. The second, index would represent top 30 constituents of the
eligible universe by full market capitalization.
The main features of the index are as follows:
Companies must have a full listing on either the National Stock Exchange or
the Mumbai Stock Exchange
Companies must generate a majority of their revenue from infrastructure
Companies must conform to FTSE's free float, liquidity rules and size
The FTSE IDFC India Infrastructure Index Series will be reviewed on a
semi-annual basis in March and September
At review the index methodology provides stability and reduces turnover in
the selection of index constituents
The indices are managed according to a
transparent and public set of index rules
A shadow working of the performance of the infrastructure companies with
reference to the new series have been highlighted in the following two charts.
It may be seen that as compared to June 2002, in a five year time frame, the
infrastructure index has grown ten times, whereas the FTSE India, all Capital
Index has grown six times, a point which Union Finance Minister particularly
observed during the inaugural speech. It could also be seen that while in the 6
years period November 2001 to May 2007 the Nifty 50 index and Sensex 30 index
has grown from 100 (taking 2001 as reference point) to about 400 the
infrastructure index has grown from 100 to 700 in case of Infrastructure 30
Index and 850 in case of Infrastructure Index.
It is very interesting to find that the top 10 of the FTSE IDFC India
Infrastructure 30 Index, which has 73% weight in the overall computation, has as
many as six companies from the energy and power group, which can be seen from
the following table. Among the Top 10 (73% weight), almost 40% weightage is from
Energy group companies.
||ICB Super sector
IDFC India Infrastructure 30 Index Weight (%)
||Larsen & Turbo
This initiative, in which IDFC has taken a very keen interest and has joined
hands with the FTSE of Financial Times, is going to contribute significantly
towards greater degree of awareness about the performance of companies engaged
in infrastructure sector. This would create higher level of confidence among the
investors to invest in the infrastructure sector. The charts that have been
mentioned earlier are revealing. While the general perception is that
infrastructure is not doing well, the northward movement of stock price of
infrastructure companies has been significantly higher in last five years than
major companies represented in Nifty 50 and Sensex 30. Energy companies have
done even better. This is a fact on which Infrastructure Companies must build
and carry conviction with the investors community that it is more attractive to
invest in Indian infrastructure sector than perhaps in other sectors. This could
prove to be a very effective tool not only for infrastructure companies but also
for IDFC and such other agencies which are aiming to help build top class
infrastructure in India and at a rapid pace.
In last few years, IDFC has pitched up its activities. If we compare its size
of operations in the first year and last year of the 10th Five Year
Plan we could appreciate the efforts that are going on.
Sanction for infrastructure projects.
Sanction for infrastructure project
( Rs. in crores)
(Rs. in crores)
2002 - 2003
2004 - 2005
2006 - 2007
Market capitalization has grown in last two years from Rs. 7425 crores in August
2005 to Rs. 17554 crores in July 2007. IDFC is now suitably positioned for a
quantum jump both in qualitative and quantitative terms. To encourage the
commencement and completion of good infrastructure projects, apart from lending,
IDFC should enhance its portfolio on equity support to promoters. This would,
infact lead to a win-win situation. While IDFC would enable promoters to
mobilize part of their equity requirement which, in turn, will lead to faster
financial closure, IDFC could expect a reasonable upside on return, better in
most cases than debt instruments could normally provide. This strategy would be
equally applicable for many other financing organizations such as PFC, REC etc.
IDFC could definitely consider enlarging progressively its equity investments
portfolio to about 25 to 30% of total size of its financing. It is indeed
satisfying and encouraging that IDFC is moving in the right direction. Its
equity portfolio is about 7% now which could be expected to rise sharply.