EGShares, the New York-based firm behind the first sector-specific emerging markets ETFs, announced today the latest addition to its product line, rolling out the India Infrastructure ETF (INXX). The new fund will seek to replicate the performance of the Indxx India Infrastructure Index, a benchmark consisting of 30 companies representative of the country’s infrastructure industry.
INXX becomes the sixth ETF offering pure play exposure to Indian equity markets, joining four large cap funds and the Small Cap India ETF (SCIN) that EGShares introduced last month. INXX is the first sector-specific India fund, positioning it to potentially benefit from future infrastructure developments in India [use the new Country Lookup Tool to identify all ETFs with exposure to any economy in the world].
Case For Indian Infrastructure
The case for India’s infrastructure industry is a relatively easy one to make. India is one of the world’s fastest-growing countries, and the infrastructure there hasn’t kept up with the surging population. Many in the western world have seen videos of the overcrowded trains and pictures of jam-packed roadways, evidence of what officials in India have acknowledged is a potential bottleneck to GDP growth. As the Indian middle class continues to grow in both size and wealth, the country’s domestic economy has experienced a tremendous boom. Yet many believe that the economic expansion could be even more impressive if not hindered by the lack of developed roads and efficient means of transportation throughout the country.
The legendary Jim Rogers is just one example of an investor turned off by India’s infrastructure (or lack thereof). “There’s a lot of talk among those in power in India about how the Internet super-highway will speed them to prosperity,” wrote Rogers after a visit to India. “Meanwhile, endless traffic jams and a deteriorating national highway system kept us creeping along at a snail’s pace as my wife and I traveled through countryside. Goods-carrying trucks can only average about 10 miles an hour crossing the country and often can be held up for days by the bureaucracy just trying to cross state lines.” [also read Seven Most Corrupt Country ETFs]
India’s population growth isn’t expected to slow any time soon. By some estimates, world population is expected to grow by 100 people every 43 seconds between 2005 and 2030; it’s estimated that nearly a quarter of those people will be born in India. Because only about a third of India’s population lives in urban areas–compared to upwards of 70% in other emerging markets and most developed markets–urbanization is expected to be an ongoing trend in coming decades. That will only increase the already glaring need to invest in roads, bridges, dams, clean water, and electricity to provide the quality of life the middle class is demanding and expand its presence in the global economy [also see Which India ETF Is Best?].
In regards to infrastructure, India is very similar to Brazil. Both emerging markets failed in the past to make necessary infrastructure investments but now have concrete plans in place to play catch-up (it’s interesting to note that Brazil, a country known for its lack of infrastructure spending, spends more than twice as much per capita than India). India’s government has recognized the “importance of investment in infrastructure for achieving a sustainable and inclusive growth of 9 to 10 percent in GDP over the next decade.”
In order to bring infrastructure spending up to the target level, the government is planning to spend $1.025 billion between 2012 and 2017. And based on previous five-year plans implemented in India (the initiative beginning in 2010 will be the 12th), many expect that figure to be revised significantly higher [also read India ETFs: Full Steam Ahead Or Due For A Correction?].
Under The Hood
INXX focuses exclusively on infrastructure, but the fund’s holdings are well diversified within this corner of the market. At the end of the second quarter, about 23% of the index was in electricity firms, with another 19% in construction and materials stocks and 14% in industrial metals and mining. The remainder is spread across industrial engineering, telecom, oil and gas producers, electrical equipment, and even alternative energy.
INXX charges an expense ratio of 0.85%.
Disclosure: No position at time of writing.