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Major Components of Indian Construction Industry

Construction in India is the second most important activity, next only to agriculture. The country is on the path of fast development of infrastructures in the fields like education, health, power and research. At the same time, the civil construction projects are on fast tracks to improve the conditions of roads, rails, highways and bridges. In addition, the country has managed to lend construction services and products to the foreign markets too.

The construction activities offered by the construction companies in India have improved in terms of quality. The construction equipment manufacturers follow the international standards to offer advanced technology-based tools. There are four major components that work in favor of the exponentially growing sector. Here is a discussion about them.

Skilled Construction Experts

Architects, civil engineers, project managers and many other important role-players in the Indian construction industry are admired for their skills and talent. Construction project managers from India have the experience and training to supervise different types of projects. In the past one decade, many praiseworthy projects have been completed by the skilled construction teams of the country. Construction labor contraction services are offered by many Indian firms for the recruitment of these skilled workers around the world.

Quality Construction Equipments

When it comes to construction tools and equipments, there are many Indian construction equipment manufacturers engaged in this field. The equipments like bulldozers, scrapers, backhoe loaders, concrete vibrators, earth compactors, concrete mixers, hydraulic excavators and many others are manufactured in the country and supplied to different parts of the world. The focus is one manufacturing technologically advanced equipments that can safe human efforts significantly, reduce energy consumption and are safe.

Top Grade Construction Material

The Indian construction services and products are not limited to construction tools and equipments only. The manufacturers and suppliers engaged in the industry also focus on supplying high grade construction materials in different categories. Glass, ceramic, wood, plastic and many other materials are available with these industry players. In addition, these companies offer hardware materials like pipes and tubes made of materials like PVC, aluminum, copper, bronze and others. Tiles for flooring and a variety of sanitary ware products form other important categories of construction materials from India.

Impressive Construction Services

From expert construction counseling to interior decoration and house and commercial building construction, the construction services from India cover all possible fields. Turnkey industrial construction is one service which is in great demand and the experts from the country are capable of offering it. Real estate construction services from India serve the projects like construction of houses, industrial plants, corporate offices spaces and commercial constructions like shopping malls and restaurants.

The construction services from India have become more accessible with the help of the online business directories. These online marketplaces provide detailed information about the service providers from the Indian construction industry. Small and medium sized equipment manufacturers and suppliers from different parts of the company have made it possible to earn exposure for their businesses through these directories. In a way, these directories have become another major component of the industry.

Investing: How to Make Money on the Industrialization of Brazil, Russia, India and China

In October 2003, Goldman Sacks published a research paper titled, “Dreaming with BRICs: the Path to 2050.” The paper states that Brazil, Russia, India and China, commonly referred to as BRIC, may rank among the world’s most dominant economies by mid century. By 2041, China’s Gross Domestic Product (GDP) could possibly be greater that the United States and larger than everyone else except Japan by 2016. The BRIC economies together might be larger than the G6 (US, Japan, UK, Germany, France and Italy) by 2039. Obviously, there are execution risks, but the trends are in place for this to occur.

This has enormous implications. As these countries develop, just think of how their people will benefit and the opportunities that will be created. Demand for items that developed countries middle-class have come to expect will be tremendous. Consumer items such IPODs and DVD players will be of interest, but that will pale in comparison to the demand for housing with indoor plumbing, electricity, basic appliances and cars. In Goldman Sachs follow-up report released in 2004, it states that between 2005 and 2015 over 800 million people in these countries will have crossed the annual income threshold of $3000. By 2025, approximately 200 million people in these economies will have annual incomes above $15,000.

So, how can we as investors benefit from the industrialization of BRIC? I would like to propose two approaches: direct and indirect investing into the emerging economies. Direct investing requires an in-depth knowledge of companies in complex and diverse countries. This is far too time-consuming for the average investor. A much simpler approach would be purchasing single-country exchange traded funds (ETFs). I realize this is a mouthful. Let’s start by defining exchange traded fund (ETF). It is a fund that tracks an index, but can be traded like a stock. Thus, it provides the diversification of a mutual fund, but is not hampered by trade cut-off times and early redemption fees. A single-country ETF is linked to a country’s index that reflects the value and composition of its specific stock market. ETFs of the BRIC countries include: Brazil (EWZ), Russia (TRF), India (IFN), and China (FXI). Their year to date performance (YTD), as of 6/30/2006, is 17.2%, 27.4%, 16.3% and 24.6% respectively. This produces an equally-weighted return of 21.8%. Trouncing the US Major indices returns of 4.0%, 1.8%, and -1.5% (DOW, S&P 500 and NASDAQ respectively).

The second approach, indirect investing, consists of investing in companies that supply materials and equipment that the BRICs will need to industrialize. Imagine the number of highways, bridges, railways, factories and skyscrapers that will need to be built. This is impossible without commodities such as iron and carbon that are combined to form steel. Modern society requires copper for electricity and information technology. Can you imagine how much cement and concrete will be consumed? The demand created for these and other commodities will be phenomenal.

To leverage this approach I have created a basket of 12 stocks. It contains proven industry leaders that produce or supply to companies that extract base metals from the earth. Base metals include Copper, Aluminum, Nickel (stainless steel and nickel metal hydride batteries), Zinc (anti-corrosive coating in galvanized steel) and Lead (lead-acid car batteries). Companies that mine base metals include: diversified producers – BHP Billiton (BHP), Falconbridge (FAL), Rio Tinto (RTP); aluminum producer Alcan (AL); copper producers – Freeport-McMoran (FCX), Southern Copper (PCU), Phelps Dodge (PD); nickel producer Inco (N); iron ore producer – Companhia Vale Do Rio Doce (RIO). The suppliers of equipment, parts and services to these companies will profit as well. Thus, I have included two heavy equipment manufacturers in the portfolio: Caterpillar (CAT) and Bucyrus International (BUCY). The final company is not a base metal producer or supplier, but countless tons of cement and concrete will be necessary for the build-out. Therefore, I have included cement and concrete producer – Cemex (CX) in the basket. This indirect approach, using an equally weighted portfolio of the above listed stocks, has outperformed the direct approach 27.2% vs. 21.8% year to date.

In closing, I would like to share a couple of implementation details with you. The above portfolios are intended to be traded as a basket meaning that all should be bought and sold at the same time. Cherry-picking a couple of stocks may not produce better results – the diversification reduces company or country specific risk. It is also important to choose the right brokerage to employ this strategy. I have found that FolioFn lends itself well to this strategy. It enables complete automation of the process by supporting single-order basket trading as well as automatic dollar cost averaging. I highly recommend combining this strategy with dollar cost averaging. For more information on the benefits of dollar cost averaging, refer to my article on “Double Digit Gains with Dollar Averaging.” Commissions on a large basket can be cost prohibitive. Foliofn address that with its various commission plans including one that allows up to 600 window trades per month for $30. Consequently, fees on accounts of $40K would be less than 1% per year using this plan. This puts fees of basket trading in-line with fees of ETF and much better than mutual funds.

There is a tremendous opportunity to make money investing in the BRIC thesis. What are you waiting for?


“Dreaming with BRICs: the Path to 2050.”