You have to see it -- no, experience it -- to believe it, but believe me when I tell you that it's big. In fact, in raw dollar terms, it's the biggest investment opportunity I've discovered for 2010.
But before you can appreciate the specifics of this opportunity, you need a little bit of the background I got on the ground during my recent research trip to India.
The message from Mumbai
We all know that India has been one of the world's fastest-growing economies over the past five years. Its gross domestic product grew more than 9% annually from 2005 to 2007, more than 7% in 2008 as the world entered an economic downturn, and should end 2009 over 6%. What's more, India's third quarter GDP data showed 7.9% growth -- a clear indicator that India is accelerating out of the recent downturn.
Yet the sense in Mumbai -- India's financial capital -- is that the country should be doing much, much better.
Of course, that sounds ridiculous to Americans like us who are overjoyed if our economy can post 2% or 3% annual growth. But India is decades behind the United States when it comes to basics such as roads, pipes, and power lines. It's even, we were told, probably 15 years behind China in these same categories.
Why this matters
Consider, for example, India's 12% power deficit. That means that the people in the country spend about three hours on average each day without power from the main electric grid. What's more, this deficit exists even though 400 million Indians -- more than one-third of the country's population -- have no access to power at all. In other words, the power deficit in India only stands to get worse, and crippling nationwide blackouts are not out of the question.
To compensate, factories, offices, hotels, and residents who have enough money purchase generators and stock their own fuel. Not only is that wasteful, but it makes doing anything in India that requires power much more expensive than it needs to be.
How much more expensive? One analyst we spoke to estimated that Indian manufacturers, given a reliable power supply, could cut costs 10% or so -- making them competitive with China and giving India a whole new way to create jobs and drive economic growth.
In fact, we heard over and over again that India's power problem is the single biggest factor holding back India's economy today. Whereas China has 900,000 megawatts of generating capacity today, India has just 150,000.
And just think: If India can grow 8% to 9% annually without reliable power, just imagine what it could do with it.
Knowing that ...
If you're still with me, then you're starting to appreciate the magnitude of India's power opportunity. And the good news for investors is this: Not only is power a huge need in India, but the new government has made fixing this situation one of its top priorities. Here's what that includes.
- Plans to double the country's generating capacity to 300,000 megawatts by 2017.
- Approvals for massive thermal, nuclear, and hydroelectric power plants.
- Providing electricity to every household in India within five years (again, some 40% today go without).
- The total elimination of the power deficit by 2012.
- Incentives for private capital to make it all happen.
Put it all together and not only is there an opportunity for hundreds of billions of dollars to be invested in India's power sector, but India is going to let companies and their investors profit from it all. That's why I call this the biggest investment opportunity I discovered this year.
Who stands to profit
As you've probably guessed, the big multinationals with expertise in these areas are all champing at the bit to win some of this business. This includes General Electric (NYSE: GE ) and Areva in the nuclear space, while ABB (NYSE: ABB ) should profit from efforts to expand India's electric grid and make it more efficient. Siemens (NYSE: SI ) , too, is lining up transmission and distribution work as well as supplying turbines for conventional power plants.
Then you have the picks-and-shovels plays such as Honeywell (NYSE: HON ) , which installs industrial security and fire safety systems, as well as IT companies like Hewlett-Packard (NYSE: HPQ ) , Cisco Systems (Nasdaq: CSCO ) , and IBM (NYSE: IBM ) that make sure all of the equipment works together.
And while they all will likely end up being involved, there's one more piece of information that smart investors should know: The Indian government is keen on making sure that a good portion of the business it doles out finds its way to domestic Indian companies.
This is why the likes of General Electric and Areva, both of which already have approvals to build huge new nuclear power plants in India, expect to use local companies for up to 70% of the work.
And that's your hint
It's as a result of that last insight that I left India knowing that I had to find an Indian company capable of this type of work to invest in if I wanted to make real money from this opportunity. Thankfully, after asking around, meeting with several different companies, and reading hundreds of pages of financials, I think I found my horse.
Not only does this company have the know-how to build coal, gas, and nuclear power plants, but it's seen its backlog for work in this space already increase 20-fold over the past two years.
Interested in learning more about this company? Just join Motley Fool Global Gains free for 30 days and download a copy of our newest special report, China vs. India: 5 Top Stocks to Profit No Matter Who Wins.
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Tim Hanson is co-advisor of Global Gains and recently returned from a research trip to India. He owns shares of ABB. ABB is a Global Gains recommendation. Danger: The Fool's disclosure policy is high voltage.