Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian consumer: The rising - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Indian consumer: The rising

Dec 4, 2008

Till just a decade back, India’s working class saved for a lifetime to own the most prized possession – a house. It now takes less than 3 years in a job to buy that ‘dream’ property. Now that’s some transformation. With wages rising at a fast clip, the Indian consumer is finally finding its place in the sun. According to a McKinsey study, an average Indian household’s annual disposable income will surge by 300% over the next two decades (to US$ 7,600, from US$ 2,700 per annum currently), a lot higher than what will be witnessed in any of the developed nations. These numbers are staggering to further dazzle you, imagine the size of this opportunity. India’s population will swell to nearly 6x the current US population over the next twenty years! Need we say more?

What’s behind India’s rising consumerism?
Over the past few years investment by multinationals in India has led to higher salaries. Indian salaries have grown by over 25% each year for the past five years! Lower income tax rates have added to the purchasing power of consumers. This phenomenal buying power has allowed the Indian economy to chug along nicely over the past two decades.

But this is just the beginning. China saw an inflow from multinationals of over USD 50 billion a year for 10 years. Investments by multinationals into India are still low. In 2006, foreign companies invested USD 10 billion in India; by 2007 that number surged to USD 22 billion. Indications are that multinationals will invest more in the next few years.

And what will that do to salary levels in India?

And the buying power of consumers?

Rising income levels, education and global exposure will all contribute in a substantial way to keep the consumption flame burning.

Over the past 7 years there has been a 1,700% jump in annual sales of colour televisions (March 2001 to March 2008). Mobile subscriptions have fared even better, much better, surging a whopping 10,400% during this period. The Indian consumer seems to have arrived finally! As more multinationals invest in India, the Indian consumer will be an even more powerful force in the global consumption cycle.

Taipan: Beneficaries of consumerism Taipan:Surging bases
Source : Equitymaster Research

Taipan:Penetration of organised retail
Source: ICRIER
Retailing - A revolution is brewing
The Indian retail market is currently of a size of US$ 300 bn (compared to China’s US$ 720 bn), with organised retail forming just around 4% of the same (20% in China). Consumption needs of Indians are currently serviced by over 3 m retail outlets, with a majority being small mom & pop kind of stores. Considering the potential, the sector continues to be one of the largest in India attracting fresh investments from the private sector.

It is not just the existing players like Pantaloon and Shopper’s Stop that are ramping up their presence (by opening retail chain stores across the length and breadth of the country). Several other large business groups including Reliance Industries (India’s largest private sector company with sales of US$ 31 bn in 2007-08), Birla group (one of the oldest business houses with operations across sectors like aluminium, textiles and telecom) and Bharti Enterprises (the promoter company of Bharti Airtel, India’s largest mobile services operator) have announced their intention to cumulatively invest over US$ 10 bn over the next five years to capture a share in the fast-growing pie of the organised retail sector.

As per industry reports, mall space in India has increased at an exponential rate, doubling itself in less than a year for the past five years and touching 40 m sq ft in 2007. This is further expected to rise to 60 msqft by the end of this year. That is clearly indicative of the revolution brewing within the retailing and therefore the consumption space in the country.

The locals are buying in India
Unlike its Asian peers that have economies highly dependent on exports to the US and Europe, India’s case is very different. It continues to be an internally driven economy – one that relies on domestic consumption for growth. This is consistent with what some of the large consumer companies in India have indicated to us. And this thought is well represented by the acceleration in same-store sales comparisons over the past few years. The Future Group (owners of the Pantaloon and Big Bazaar retail chain brands), for instance, saw its same-store sales rising by almost 9% year-on-year in the latest concluded fiscal.

Well, the blame game shall continue…
The recent accusations made by some US government representatives (including the President) on Indians’ improving nutrition habits that has led to a worldwide shortage of food cannot be fully denied, except for its disparaging nature. Indians are definitely eating more, and eating better.

And well, they made certain interesting statements – "…there are 350 million people in India who are classified as middle class. That’s bigger than America. Their middle class is larger than our entire population. And when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up." Well, Indians need to get ready for more of such accusations going forward, considering that the country’s requirements of consumption items other than food are also on a rise.

As Morgan Stanley chief economist Stephen Roach has rightly pointed out – "We believe that the global rebalancing will not occur as long as the world remains hooked on one consumer – the American variety. Think India if you want a way out of that trap. Prepare yourself - here comes the Indian consumer."

…yet history shall repeat itself
This age old saying is being proven to the core by India. Called the "Golden Bird" in ancient times for its riches, the description now rests firmly on its shoulders, albeit from the point of view of the opportunity it provides. India's transition to an 8% growth path in recent years is very much an outgrowth of the emerging consumerism of one of the world's youngest populations. That should provide a powerful leverage to the Indian economy that is being seldom seen in the externally-dependent developing world.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Feb 22, 2019 09:31 AM