Emerging Global Advisors targets India’s infrastructure drive

by Dave

The new ETF will track the bespoke INDXX Infrastructure index, made up of 30 Indian companies with a market value of at least $200m that are expected to benefit from infrastructure spending.

There are other infrastructure ETFs on the market, from providers such as iShares, Deutsche Bank, State Street and Claymore, but these track global infrastructure indices based on stocks with primary listings in developed markets.

The largest industry weighting in the EGShares ETF is electricity (23.3 per cent) followed by construction and materials (16.9 per cent), metals and mining (13.7 per cent) and industrial engineering (12 per cent).

In contrast, ETFs that track the broader Indian equity market are more heavily weighted towards sectors such as oil and gas, IT services and commercial banks.

Mr Kang says underinvestment in infrastructure has been particularly acute in India, which spends just $41 per capita on infrastructure, compared with $92 in Brazil and $408 in China.

However, there are clear signs of change with India’s government planning to spend $514bn on infrastructure as past of its 11th five year plan, which runs from 2007 to 2012. The majority of this spending, 71 per cent, is earmarked for 2010-2012.

There are plans to build five new nuclear power stations, modernise 35 (non-metro) airports, upgrade 22 railway stations and build two dedicated rail freight corridors.

Goldman Sachs estimates India’s infrastructure spending could reach $1,700bn over the next 10 ten years as the country attempts to deal with enormous demographic changes that are expected to see its labour force increase by 110m over the next decade (compared with a rise of 15m in China and a decline of 3m in Japan).

Although India already has 42 cities with a population of more than 1m, only 29 per cent of its population lives in urban areas. Goldman says India is “on the cusp of a massive increase in its urban population”, with an estimated 290m people moving into cities by 2030 and 640m shifting to urban areas by 2050. As a result, the number of cities with populations above 1m could increase four-fold by 2050.

This rapid urbanisation and the enormous scale of India’s “demographic dividend” have significant implications for infrastructure spending.

Goldman describes activity related to roads, power, and ports as “frenetic” and says an aggressive policy of road building should see the pace of construction rising from 10km to 20km a day.

According to the Ministry of Shipping, India’s port capacity could increase from 145m tonnes annually to 326m tonnes over the next few years.

via ft.com