Investing in the Affluent India | Investing Strategy

The rise of luxury consumption & stocks that'll benefit →

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Today in less than 5 minutes:

1) How India is getting richer + stocks that will benefit the most
2) Stock in Spotlight: A defence company where FIIs have more than doubled their stake recently
3) ITC’s biggest shareholder plans to sell its stake

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India is getting richer… And you can too!

Goldman Sachs India recently released a report called ‘Rise of Affluent India’. And it has quickly become a favourite among stock market enthusiasts!

Basically, it talks about how the ‘affluent class’ of India is growing in number, and how an influx of disposable income will benefit the Indian economy, especially certain consumption-led industries.

Let’s learn what it had to say about India’s consumption story 🛍️

By the way, you can learn to evaluate the influence of different macroeconomic factors on the stock markets in our Stock Market Valuations course.

India’s affluent population is growing fast

The average per-capita income of an Indian is ~$2,100. As per GS, an affluent Indian is described as a citizen with a per-capita income of US$10,000, or INR 8,00,000 lakhs per year. Currently, India has about 60 million of them, but this number is projected to grow to ~100 million by 2027, supported by multiple data points:

 

Source: Goldman Sachs - The Rise of ‘Affluent India’

Over the past 3 years, there has been a significant increase in the value of financial and physical assets. While the number of Demat accounts and the value of Indian equities have seen rapid growth in FY19-23, the total stock of household gold has also grown. Not to mention that property prices across the country are also rising at a much faster pace…

Top-end consumption > broad-based consumption

While it remains clear that the economy will benefit from the growing number of ‘rich’ Indians and the projected higher disposable income, an insight from the report pointed out that,

Companies that address consumption from the top end of India’s income pyramid have grown much faster compared to companies in the same category that address broad-based consumption.

Goldman Sachs - The Rise of ‘Affluent India’

Data supporting the insight:

  • Companies that largely address upper-income consumers have seen a strong CAGR over FY19-24E

  • The number of credit cards issued has doubled since FY19; while debit cards have seen only a marginal increase

Now let’s understand how we can benefit from this trend…

4 sectors + top stocks to capitalize on the consumption theme

Studying the consumption patterns of countries that have a per-capita income of ~$10,000 like China & Brazil, the Indian average spending in certain categories is relatively much lower.

Looking at such categories, as well as comparing India’s average consumption with the top 10% of urban India, the following sectors are believed to benefit the most from the consumption story:

1/ Jewellery 💍

Significant investments by large jewelry brands and the emergence of numerous fashion accessories and jewellery startups point to a growing market. Based on its potential for growth and value addition, the government has declared the gems & jewellery sector as a focus area for export promotion as well.

Jewellery top picks:
- TITAN
- KALYANKJIL

2/ Leisure & Travel 🏨

Higher disposable income finds a way towards expensive entertainment and leisure choices. Especially with the recent push for affordable island and religious tourism, and the govt.’s commitment to make India a well-connected land by roadways, railways, and airways confirms the potential of the country to be one of the most attractive tourist destinations in the world.

Leisure top picks:
- PHOENIXLTD
- INDIGO
- INDHOTEL

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3/ Food & Entertainment 🍔

QSR has been the fastest-growing restaurant format in India with ~25% CAGR over FY10-20, and rising disposable income has been the key driver. With the affluent cohort growing in number, this sector is likely to benefit the most.

Food & entertainment top picks:
- DEVYANI
- SAPPHIRE

4/ Healthcare 🩺

As it has been observed for developed countries in the past, higher disposable income gives rise to ‘lifestyle’ diseases. Along with that, the hesitation to pay for high-quality healthcare is reducing as the insurance penetration of the country improves. Hospital chains stand as key beneficiaries.

Healthcare top picks:
- APOLLOHOSP
- MAXHEALTH

Which other stocks do you think will benefit from this trend? Tell us by replying to this email!

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