India Ratings maintains neutral outlook for transportation infra in FY27

India’s transportation infrastructure sector is expected to perform reasonably well through the rest of FY27 despite global disruptions and economic volatility, India Ratings and Research (Ind-Ra) said on Thursday while maintaining a neutral sector outlook.

The ratings agency retained stable outlooks for toll roads, hybrid annuity model (HAM) projects, airports and electric bus projects amid stable operating assets, healthy toll revenue growth, higher road awards and continued asset monetization by the National Highways Authority of India (NHAI).

Toll roads are expected to sustain strong revenue growth, supported by economic activity and rising toll rates. Ind-Ra expects toll collections at national highway plazas to grow 7-7.5% in FY27, backed by 4-4.5% traffic growth.

Aggregate toll income in Ind-Ra’s portfolio grew 10.3% year-on-year in FY26 and 8% in the first quarter of FY27. National highway toll collections rose 14.4% in FY26, supported by traffic growth, toll-rate increases linked to the Wholesale Price Index (WPI), and additional tollable road length.

“The recent amendment in BOT (Toll) MCA aims to enhance the BOT model’s attractiveness by strengthening lender protections, introducing traffic-risk sharing mechanisms, and reducing execution risks. While these measures are expected to boost private-sector participation,” said Rasika K, analyst, infrastructure & project finance group, Ind-Ra.

However, construction risks remain elevated. Ind-Ra’s analysis of 199 ongoing NHAI projects found that more than half, involving an aggregate award cost of nearly ₹90,000 crore, are likely to face delays exceeding 12 months. Land and workfront constraints, standardised construction periods, material sourcing difficulties and delays in approvals are among the key reasons.

Ind-Ra said NHAI’s measures, including extensions of time, settlement agreements for legacy disputes and delinking of pending stretches where feasible, provide some comfort. These measures can enable provisional commercial operation dates on completed stretches and allow annuity inflows to begin, limiting the financial impact of localised delays.

HAM remains the preferred award mode, with NHAI planning to award about 51% of its planned 5,140 km under the model. BOT toll is expected to account for around 27%. Yet, a successful shift from HAM to BOT remains uncertain.

BOT awards remained subdued, with no awards during FY26 against 209.8 km in FY25. Ind-Ra expects recent changes to the Model Concession Agreement to improve bankability and revive private-sector participation.

Competition in HAM projects is showing early signs of easing following larger package sizes and tighter net-worth requirements introduced by the road transport and highways ministry. Awards to stronger sponsors improved for the first time in FY26 after a prolonged decline, while bid project cost per lane-km also improved.

India’s InvIT ecosystem is also supporting asset monetisation. Road InvIT assets under management reached ₹3.17 trillion in March 2026. NHAI has identified 17 assets totalling 1,692 km for possible monetisation through the toll-operate-transfer route or National Highways Infra Trust in FY27.

NHAI expects the road InvIT sector’s AUM to reach about ₹6 trillion by FY30, aided by the National Monetisation Programme 2.0, while the share of HAM assets in InvITs could reach ₹1 trillion.

Ind-Ra said RBI’s revised lending framework, which caps combined bank exposure to a borrowing InvIT and its underlying entities at 49% of asset value, should not significantly constrain well-rated InvITs. Those exceeding the limit can raise debt through the non-convertible debenture route.

The ratings agency revised the rating outlook for airports to stable while maintaining a neutral sector outlook for the remainder of FY27.

Domestic passenger traffic grew 1.6% in the first quarter of FY27, while international passenger traffic fell 10%. Domestic air traffic movements were broadly resilient, but international movements declined by 11% due to airspace closures and cancellations. Passenger growth has slowed amid higher fuel costs and the West Asia war.

Government measures, including ATF price caps, payment deferments, rebates, liquidity support and tax reductions, have helped stabilize domestic aviation. Ind-Ra expects the commissioning of Navi Mumbai and Noida airports to support medium-term growth by addressing unserved demand and easing congestion.

“While recent geopolitical developments have introduced near-term uncertainties for the aviation sector, the credit profile of Indian airports remains supported by resilient domestic demand, a supportive regulatory environment and continued infrastructure expansion,” said Vandan Pasad, analyst, Infrastructure & Project Finance Group, Ind-Ra.

For electric buses, Ind-Ra retained a stable rating outlook, citing satisfactory operations and adequate sponsor support, although delivery challenges in pending contracts remain a monitorable.

The agency also noted the rollout of multi-lane free-flow tolling (MLFF). NHAI introduced MLFF at six plazas in the first quarter of FY27 and plans to expand it to 17 plazas by year-end. Using automatic number plate recognition and FASTag technology, the system is aimed at reducing congestion and improving toll collection efficiency.

Overall, Ind-Ra expects transportation infrastructure to remain resilient in FY27, with strong operating assets and monetisation opportunities offsetting execution risks and geopolitical uncertainties.