The fortune of many sectors is typically dependent upon the growth curve of the economy. Such plays are cyclical in nature. Take the case of engineering for example. The capex cycle is dependent upon interest rates governed by the Reserve Bank of India (RBI). A hawkish stance delays industrial capex while a dovish approach encourages investments. Hence, one needs to have a clear understanding of the trough and peak of the cycle in order to buy and sell at the right time.
However, there are few sectors which have an eternal theme. Their prospects are not linked to the industrial activity in general. Consumption is one of them. Its fortunes are linked to the population growth and standard of living. If both these factors are in place the theme would continue to prosper regardless of slowdown. Take the case of emerging markets. Better employment opportunities and rapid growth has increased the standard of living. And in these markets it is the consumption boom which is driving the economy.
However, it may be noted that the consumption play has two sides to it. One is the discretionary side and second is the non-discretionary side. While demand in the non-discretionary side remains eternal it is the discretionary side which is hit worst during the times of slowdown.
Nonetheless, it is interesting to note that the demand for discretionary spend in mid-size luxury car and electronic products has remained buoyant despite the industry slowdown. During such times we expect consumers to down trade to cheaper alternatives. However, surprisingly the demand in the mid segment for TVs, mobile and luxury cars is either at par or has surpassed the demand from both expensive as well as cheaper alternatives. Now, prudence would convey that during these times the demand for low end models should increase. However, the consumer sentiment is depicting a different story altogether. It reflects the fact that the consumption story is getting ripe on the discretionary side which predominantly is not the case during downturns. It also signals that the standard of living for the middle class Indian is stable and is improving as time elapses.
Increasing consumption means that the India growth story is not exclusively dependent upon the external growth factors. Hence, one can conclude that India's growth prospects appear to be bright as the unpredictability associated with the external factors is minimal.