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CIO Academy: Unlocking New Trends and Emerging Opportunities in Indian Consumption
Jul 24, 2024
- India is currently the world’s 5th largest economy and given its average rate of growth of over ~6 per cent, the country is on track to becoming the world’s 3rd largest economy by 2030. At this juncture, India’s per capita income is set to more than double from the current USD2,300 to ~USD5,000, comfortably placing India in the upper middle-income category. In tandem with India’s GDP growth and rising incomes, the wealth of affluent Indians (earning more than USD10,000/annum) is growing. Between 2019 to 2023, affluent Indians have grown at a compounded annual growth rate of about 12-13 per cent. It is also estimated that by 2027, the cohort of High Net Worth Individuals (HNWIs) in India should increase from ~800,000 in 2022 to over 1.66 million people. At this point, the number of households earning more than USD35,000/year is also expected to rise five-fold
- This rise in Indian incomes and wealth is creating a social metamorphosis of sorts - boosting the lifestyles and aspirations of new age Indian consumers – who now demand premium quality and personalisation in consumption. This upgradation of affluent Indians’ lifestyle has given birth to the ‘Premiumisation of Indian Consumption’ – a trend non-existent until a few years ago but expanding at a fast pace now. In addition, factors like fast growth of the Indian middle-class, improved access to credit, urbanisation, digitalisation and the rise of new age entrepreneurship are new structural drivers that are bolstering Indian affluence and driving a shift towards ‘premiumisation in consumption’
- However, Indian consumption has been bifurcated, until now. We have observed a K-shaped consumption pattern, where the top-of-the-pyramid demand has been far more robust than the bottom of the pyramid because of lagging rural incomes. Lack of enough jobs and rising wealth disparity have so far plagued Indian consumption at the lower end. But now, the rise of new catalysts like Modi 3.0 government’s policy focus on prioritising job creation, employment-linked incentives for employers, upskilling, rural and agricultural reforms should benefit those at the bottom of the pyramid. This should reignite India’s domestic consumption cycle over the medium term, boosting India’s GDP growth further
- With over 60 per cent of Indian GDP coming from domestic consumption, we think it is important for investors to understand these often under-appreciated but fast emerging trends. We maintain an overweight view on India and see attractive investment opportunities in sectors like consumer discretionary; consumer durables; and FMCG. Financials too should benefit from rising credit demand and home loans’ demand, driven by India’s real estate boom
- Foreign Investors with limited implementation choices can benefit from gaining broad Indian equities’ exposure, as both financials and consumer discretionary are the two biggest sectors in leading Indian equity benchmarks