India's Infrastructure and Inflation Show Opportunity

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For most people on the outside, India has become the end destination for their telephone calls. However, inside the borders of this Asian country is a near 180 degree change in culture, wealth and growth. As more and more companies find Indian outsourcing to be an excellent opportunity for bottom line cost cutting, Indian families are seeing top line income growth.

Rising inflation statistics merely helps new investments come into realization.

All this income is finding the wallets of people who are eager to spend it on themselves and others – and on the things most in the developed world find to be near necessities. The cell phone, computer, and personal transportation are a staple to the average person in North America, but have only recently come into reach for the growing Indian middle class.

Those three products, however, require other items. A cell phone doesn't work without cell towers, computers and electronics require electricity and fiber optic lines, and the car requires roads suitable for easy traveling. Unfortunately, in most of India, this necessary infrastructure isn't in place, and where it is in place, it’s quickly wearing out.

The massive underinvestment in infrastructure is best demonstrated by its power grid. While cell phones and computers are a recently development, electricity is a product of the nineteenth century. Today, peak demand for electricity is an eighth higher than capacity.

Moderate Inflation Helps

Improving inflation statistics only help to make these new investments possible. November's year over year inflation reading at roughly 7.5% is moderate, if not low, for India. Inflation was the worst at the start of the year, with inflation nearly two times higher in February than in November.

The falling inflation rate allows for flexibility in public investment. The government has planned to spend as much as $500 billion through 2011 in improving its infrastructure and making the travel of people, products, and information more reliable and efficient. The boon, of course, is that more efficient transport of those three elements means only a more globally competitive Indian economy.

Playing on the Internal Factors

The simplest play is perhaps the most obvious. The EGShares India Infrastructure fund, though thinly traded, is to Indian infrastructure what the Dow Jones Industrial Average is to American brands. The index tracks 30 different large cap companies (those most capable of handling public contracts) involved directly in construction, electricity, telecommunications and transportation.

As an aside, its biggest investment is in Tata Motors, a company known for its roots in Indian transport vehicles for public and private use. A full 12% of the fund is shaped around direct plays on Indian cellular phone companies.

Both the government of India and its people know that an investment in infrastructure is the only way this massive country can be competitive in the international markets. While China's infrastructure boom may be cooling post-2009 stimulus, India's boom is just getting started.