India is a unique country with an immense economic
opportunity. The country's combination of strong economic growth
and poor infrastructure means that the country will need to pour in
billions of dollars to complete economy-supporting infrastructure
projects. However, economic concerns have been a drag on the
country's equity markets since November.
Since mid-2010, a series of infrastructure-related corruption
scandals--including a high-profile USD39 billion scam over the sale
of second generation telecommunications licenses--have eroded
investors' confidence in the sector.
Corruption will remain one of the most potent risks for
India-related investments for some time. But the Indian government
has brought prominent politicians to justice for their role in
these scandals, indicating that policymakers are serious about
cleaning up graft and corruption in the system.
Furthermore, the country's political establishment recognizes
that economic growth is the key to votes; developing infrastructure
provides one path to political victory.
India's economy is expected to expand by 8 to 9 percent this
year and this growth has attracted significant amounts of foreign
direct investment and investment flows into the Indian market,
particularly from institutional investors. Any short-term slowdown
resulting from higher interest rates, inflation or even corruption,
should be viewed as a buying opportunity for long-term
That being said, we've witnessed a slowdown of projects under
development and new projects over the past six months. As the graph
below indicates, the value of new announced projects has fallen
from INR6.2 trillion (USD130 billion) in the first quarter of the
2011 fiscal year to INR2.5 trillion (USD55 billion) in the fourth
The graph ostensibly justifies investors' concerns about the
Indian infrastructure sector; the currently slowdown is dangerously
close what we saw during the collapse of Lehman Brothers.
Nevertheless no one with any knowledge of India will deny
that better infrastructure is critical to the country's economic
future. The country has no choice but to build new infrastructure
projects if it is to maintain its economic dynamism.
It's a common theme that runs across all emerging markets.
Without improvements in infrastructure, the ambitious goals to
boost domestic demand in emerging economies will be unachievable.
Without upgrading their infrastructure, these countries will not be
able to achieve the savings from reduced costs and a faster
production cycle. This is particularly important
for Asia because the region is leading the charge on
global economic growth. I write about this in more detail and
include several picks profiting from this trend in my
China to Power Global, US Growth
The most current statistics indicate that by 2025, 21 of the
world's largest 25 cities will be in developing countries. Today
there are 16 cities in emerging markets with a population of over
10 million. And althoughChina leads the world in the pace of
urbanization, India is right behind it.
Highways are a major focus of India's infrastructure
development efforts. As you can see in the graph below, the
National Highway Authority of India (NHAI) awarded more than 5,000
kilometers of highway projects last year. This figure is projected
to rise to more than 7,000 kilometers in 2011.
There are also plans to upgrade about 24,000 kilometers of rural
roads over the next five years as well as an initiative to build up
the smaller roads that connect major arteries to small villages. By
connecting these areas to the nation's growing highway system, this
program has the potential to unlock the economic potential of these
The process of building out these roads may slow because of the
recent slate of political scandals. But infrastructure projects are
not only necessary for the country's economic future, they are also
critical to political survival in the country's rough-and-tumble
Political stability and programs aimed at economic reform and
growth are key to collecting votes in India.
Consider India's state of West Bengal, where the
Communist party was recently voted out after three decades of rule.
In last month's regional elections, voters in West
Bengal ousted the Communist Party of India (Marxist) in favor
of the Trinamool Congress Party, which ran on an anti-corruption
and pro-growth platform.
The same will hold true for the Congress Party, the leading
party in the central government coalition. Without total commitment
on reforms and economic progress, the Congress Party will face an
uphill battle in the general elections to be held three years from
Exchange-traded funds (
) are an excellent vehicle for tapping into broad trends in global
infrastructure growth, a multiyear investment theme that my
co-editor Benjamin Shepherd and I track in our
Global ETF Profits
One ETF that could help you benefit from the push to build
out India's infrastructure is
Emerging Global Shares INDXX India Infrastructure Index
), which offers exposure to a variety of infrastructure-related
industries. A little more than 50 percent of the ETF's holdings are
in companies involved in the production and distribution of
electricity, construction and materials, industrial metals and
mining, and industrial engineering. You can find out more about why
this ETF is a top pick of mine in my
An ETF for India's Infrastructure Boom