India’s economy is growing at the second-fastest pace amongst the world’s major nations, and is likely to continue to do so, as the country is abundant with an intelligent and young labor force. Furthermore, this growth is shinning a ray of light on the nation’s infrastructure sector and boosting the appeal of the EGShares India Infrastructure ETF (INXX).
According to a recent article in The Wall Street Journal, numerous private equity firms have recognized this appeal and have turned their attention to the emerging market sector. In fact, the article indicates that there were 48 private equity deals in infrastructure worth an estimated $3 billion last year, with another 38 infrastructure funds currently waiting to invest in India’s infrastructure.
From an overall macro standpoint, the case for Indian infrastructure relatively speaks for itself. India is already one of the world’s most populated nations and is expected to witness rapid population growth over the next two decades. In fact, some experts estimate that nearly one in every four newborns in the world over the next 20 years will be born in India. Additionally, of the nation’s current population, a mere one-third lives in urban areas; as purchasing power and incomes rise in India, urbanization is expected to be a prevailing trend. That trend of urbanization will likely further boost the demand for better roads, bridges, electricity and water transport in the nation.
In the past, India, similar to many other emerging nations, has failed to make the necessary infrastructure investment to keep up with its growing economy and population, but it is now making that a priority. The Indian government has pledged to spend north of $1 trillion on various infrastructure projects over the next five to six years, and could to up the ante as its economy continues to grow and the nation seeks to become an economic powerhouse.
Although an opportunity seems to exist in India’s infrastructure, it is important to consider some of the risks that are involved with the sector. Some of these risks include regulatory hurdles, ecological concerns and opposition to land acquisitions. In fact, these risks have led to significant delays on several infrastructure projects. Despite these risks, the emerging market sector still has appeal, and gaining access to it through an ETF helps alleviate some of the risks involved.
INXX is truly a diversified play on Indian infrastructure, as it seeks to replicate the performance of an index which is comprised of 30 leading companies involved in the development of India’s infrastructure. From an industry-weighting standpoint, nearly 20% of assets are allocated to electricity and power producers, 17.7% to construction and materials, 13.7% to industrial engineering and 12.4% to mobile telecommunications. Top holdings include Tata Motors Ltd (TTM), Sterile Industries India Ltd, GAIL India Ltd, Tata Power Co Ltd and Bharti Airtel Ltd.
Disclosure: No Positions