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What Led to the Euphoria around India’s Construction Sector?

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NDA’s (National Democratic Alliance) reforms

The NDA (National Democratic Alliance) came to power in India in May 2014. With big promises of development, the NDA has been pushing for major reforms to help speed up the recovery process. To name a few, the government has been trying to introduce the land acquisition bill, the GST (Goods and Services Tax), reforms in the banking sector, and reforms regarding retrospective taxation.

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Big bang reforms and initiatives

In its effort to create growth in the construction and manufacturing sectors and to encourage multinationals to set up their manufacturing units in India, the government launched the initiative Make in India in September 2014. The chart above shows the quarterly growth rate of the manufacturing sector.

In October 2015, India’s government also launched the Swachh Bharat Mission, which has proved to be a major factor in increasing demand in the construction sector. The Swachh Bharat Mission is an initiative to provide the country with clean infrastructure.

In its most recent set of reforms, the government of India announced major FDI (foreign direct investment) reforms in various sectors in November 2015. These included reforms in the construction and manufacturing sectors. In the construction sector, the requirements of minimum area and capitalization have been waived. This means foreign investors can now invest in very small projects through the FDI route.

In this series, we’ll analyze the performance of India’s construction sector. According to the Indian government’s estimates for the five years from 2006–2007 to 2010–2011, the construction sector contributed 8% to India’s GDP (gross domestic product).

India-focused mutual funds

India-focused mutual funds like the Wasatch Emerging India Fund (WAINX) and the Eaton Vance Greater India Fund Class A (ETGIX) have their greatest exposure to the Indian financial sector. They also have small exposure to construction-related sectors like materials. The top ten holdings of the ETGIX constitute large cap banking companies like ICICI Bank (IBN). The funds also invest heavily in the technology sectors (INFY) (WIT).

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