Axis Infra Index
With Axis Infra Index, you get an opportunity to invest in infrastructure sector. You would get a concise and intelligent guide to opportunities across the infrastructure index. Axis Bank has had the experience of backing several infrastructure projects. With the launch of Axis Infra Business Banking, you are now able to take it over the next level.
Having backed some of India's most illustrious Infrastructure projects in sectors such as power, roads, airports and ports, Axis Bank has taken its expertise in Infrastructure Financing to the next level with the launch of the Axis Infra Index report, a concise and intelligent guide to opportunities across the infrastructure sector.
The Axis Infrastructure Index is designed to capture evolving fundamentals of Indian Infrastructure summarising the investment climate in infra segments. The Axis Infrastructure is the first of its kind in India, intended to facilitate interpretation of capex, financial, policy, regulatory, tax and other associated developments which influence investor confidence.
Components of the Index
The primary objective of the Index is to convey a sense of investment conditions in infra sectors and the ability of the segment to draw in capital funds. Therefore, the Index places inordinate weight on funds flows, which after all, is the ultimate outcome of all the underlying conditions, the efficiency in commissioning projects, the regulatory environment, tax incentives, etc.
- Output indicators: The intention is to capture primarily supply side performance of selected sectors. Data availability plays an important role in selection of the indicators. Some indicators also have a demand signal built in, e.g., base and peak load demand shortages in electricity.
- Capex Completions / Project Commencements: This shows the value of infra projects getting completed / coming online.
Flow of funds: Financial closure is a signal of the commercial viability of the project, even with VGF. Funds flows have been separated into equity and debt components, to reflect the different risks associated with each:
- Equity: Although project finance typically has a 4:1 debt - equity ratio, equity has been given a higher weight in view of the risk characteristic of equity and its role in pulling together debt funds.
- Debt: Bank loans have been the largest source of debt funds for infra projects. However, data on bank credit flows into projects classified as infrastructure by the RBI is only available at quarterly intervals. We have allocated the quarterly disbursements equally across the three months.
- Signals from Equity markets: Strong equity market performance is a likely precursor to higher equity market fund flows to the sector as it is an indicator of attractiveness of the sector. The performances of infrastructure sector equity stocks have also been incorporated through the CNX Infrastructure Index.
- Regulatory and policy developments: Because of natural monopoly characteristics, infrastructure segments are amongst the most closely regulated. Due to the non-recourse nature of the project financing, the risks associated with changes in the legal, policy, tax and regulatory environment have a large role in determining commercial viability of projects. The Index incorporates these changes as ordinal indicators.
April 2005 is chosen as the base year, with the values of the Index components normalised to 100 for the month. This choice is consistent with many key macroeconomic variables using 2004-05 as their base year.
Determining the weights of Index components: The AII is constructed from the above five indicators using principal component analysis (PCA). Simulations show that the AII remains relatively robust to the relatively minor weighting changes.