Why is the US infrastructure deal so important? How will it affect Indian investors?
Elected leaders in the US recently set a rare example of bipartisanship and demonstrated that political differences can be set aside for the public good. Democrats and republicans voted for the future of the US on August 10, 2021 when the Senate cleared the USD 1-trillion infrastructure bill.
Why is the infra deal so crucial?
Out of the USD 1-trillion allocated to the infra deal, USD 550 billion is going to be in the form of new investments. They are expected to turbocharge the growth engine of the world’s largest economy.
You see, at present nearly 1 crore American households and 4 lakh schools and child care centres don’t have access to safe drinking water. As a corrective step, the US government is aiming to overhaul the country’s drinking water infrastructure and replace the currently installed lead pipes and service lines with safer options.
Similarly, the power outages in the US cost USD 70 billion a year. Proposed investments by the US government in grid expansion and modernization will create a positive multiplier effect. So is the case with investments in other sectors.
But, it still is a battle half-won.
The Biden administration is now hoping to pass the USD 3.5-trillion plan targeting investments in childcare, healthcare, housing, agriculture and clean energy, amongst others.
Implications for India…
The US is not only the world’s largest economy, but India’s largest export market too. Therefore, any major policy decision in the US involving fresh investments can have a significant bearing for listed and unlisted companies in India.
Since developments discussed previously are on the expected lines, you might be wondering if most of these positives have already been factored into commodities and stock prices. That’s anybody’s guess for now. Nonetheless, experts tend to agree that the passage of the infrastructure bill in the US will provide a lot more visibility to the metals demand and underpin prices.
No wonder metals and mining companies in India are having a dream run, like most of their global counter parts. Besides sustained prices in the international market, anticipated improvements in the domestic economy are keeping Indian miners busy. Many of them are already working on a hectic capex schedule.
Apart from improving fundamentals, the recent outperformance of mining and metal companies is also on account of a prolonged underperformance and attractive valuations at the beginning of the rally in 2020.
Other sectors may benefit too
Infrastructure investments by the US government may open up new growth opportunities for India’s IT sector. Yes, you read it right!
While EV and healthcare have already started gaining traction in the new deal inflows of Indian IT companies, sectors such as railroads are yet to make their presence felt. Let’s not forget, the US government has allocated USD 66 billion for the expansion, modernization and maintenance of the country’s railroad system. And that’s huge.
Potential spending by the US government on social programs might help companies exporting, pharmaceuticals, home improvement and other consumer products to the US.
In a nutshell
In the aftermath of global financial crisis 2008, the phrase—When Uncle Sam sneezes, the World catches cold—got famous amongst journalists and commentators. Has time come to say When Uncle Sam gets up, the world gets going?
You may also like to read: Can Pharma Funds continue their dream run in future?
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