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Developing markets are attractive destinations for retailers as incomes rise, and India is one such case where rising affluence is changing consumption patterns, making it interesting for investors. Private consumption accounts for 55%-60% of the country’s GDP. And as per the World Bank, India’s consumption spending has nearly doubled in the last ten years, amounting to $2.25 tn in 2021.
However, experts are concerned about the pace of growth in India’s private consumption this year. Consumption grew by 2.8% year on year in the first three months of 2023. Additionally, private consumption only climbed quarter on quarter by 0.5% between January to March, after falling by 2% in the preceding three months. This may be attributed to the country’s six consecutive interest rate hikes since May 2022 to combat high inflation.
Along these lines, around 74% of Indian respondents, as compared to 50% of global respondents, expressed concerns about their financial situation in 2023, as per a PwC survey, while 63% of Indian respondents said they have reduced their non-essential spending. Additionally, most Indian consumers said they plan to spend less in all surveyed categories in the next six months.
“Industries including luxury and premium products, travel, and fashion expect to see the greatest portion of consumer spend reductions over the next six months, whereas groceries is expected to decline the least,” said PwC.
India consumption to double by 2030
Although India’s consumption growth is looking weak this year, the long-term forecast remains bright. This is because a growing Indian middle class is projected to fuel India’s spending in the future years.
”Nearly 80% of households in 2030 will be middle-income, up from about 50% today. The middle class will drive 75% of consumer spending in 2030… As 140 million households move into the middle class and another 20 million move into the high-income bracket, they will spend 2-2.5x more on essential categories and 3-4x more on services,” said the World Economic Forum (WEF) in 2019.
The international non-governmental organisation also believes that technology will play a key role in driving India’s consumption to new heights by 2030. According to the WEF, improvements in digital technology will enable businesses to organise and monetise latent consumption opportunities while bridging the gap between rural and urban India, giving rise to more informed consumers.
“India’s income distribution could flip over the next decade, and consequently overall consumption in the country could more than double from $2 tn in 2022 to $4.9 tn by the end of the decade,” said Morgan Stanley.
According to the US investment banker, the non-grocery retail sector will see the biggest growth in Indian consumption, covering categories like clothes and accessories, leisure and recreation, and household products and services.
How to invest in India consumption
With India’s consumption on the rise, investors might consider investing in the following companies:
Hindustan Unilever (HUL):
Hindustan Unilever Limited, based in Mumbai, is a British-owned Indian consumer products firm. Foods, drinks, cleaning chemicals, personal care items, water purifiers, and other fast-moving consumer goods are among its offerings. The company announced that its net profit increased by 9.66% year over year to Rs 2,552 crore ($308.8 m) in the first three months of 2023. During the same period, its quarterly sales increased by 10.9% to Rs 14,638 crore ($1.77 bn).
Listed on the Bombay Stock Exchange (BOM: 500696) and the National Stock Exchange of India (NSE: HINDUNILVR), HUL has a market capitalization of $76.72 bn. The company’s stock has risen by 18.29% in the past year. It has a PE ratio of 63.30 and a forward PE ratio of 57.80. The stock has a price-to-book ratio of 12.59.
“We believe HUL’s overall tepid Q4 result was a temporary blip and we expect the company’s performance should start seeing improvement as 75% of its business continued to gain market share through premiumisation and driving operational efficiency,” said insight provider Axis Direct on Smartkarma.
Titan Company:
It is a subsidiary of the Indian Tata Group that specialises in producing trendy accessories, including jewellery, watches, and eyewear. Titan Company registered a 50% year on year rise in net profit, amounting to Rs 734 crore ($88.83 mn) in the quarter ended March 2023. During the same period, its revenue surged by 33% year on year to Rs 9,704 crore ($1.17 bn).
Titan Company has a market cap of $30.61 bn and is traded on the Bombay Stock Exchange (BOM: 500114) and the National Stock Exchange of India (NSE: TITAN). Additionally. the company’s shares have increased by 29.46% since last year. It has a forward PE ratio of 70.42 and a PE ratio of 74.84. The company’s stock has a price-to-book ratio of 21.39.
Godrej Consumer Products:
Godrej Consumer Products Limited is a Mumbai-based consumer products firm. Soaps, toiletries, and liquid detergents are among the items sold by the company for India’s consumption. Godrej Consumer Products’ net profit rose by 24.5% year on year to Rs 452 crore ($54.69 mn) in the first three months of 2023. During the same period, the company’s revenue increased by 10% year on year to Rs 3200 crore ($387.2 mn).
The company’s stocks are listed on the Bombay Stock Exchange (BOM: 532424) and the National Stock Exchange of India (NSE: GODREJCP). Since last year, the company’s shares have gained 37.73%. Along with that, the shares have a forward PE ratio of 49.26, a PE ratio of 62.81, and a price-to-book ratio of 7.80.
Editor’s note: All stock movement figures as of June 6, 2023.
