India is emerging from a USD 2300 per capita to ~USD 5000 over the next 5 to 10 years. This makes consumption is an evergreen story for a country like India. Does it mean one should invest in consumption stocks whenever a festival is around the corner?
A recent World Economic Forum study says that 80% of India’s population are getting into the middle class by 2030. They are likely to pump in about $5.7 trillion into consumer spending. This means all the extra income that people earn can be channelled to spends that give people pleasure and joy.
Consumption is not one ‘uniform’ sector like, for example Steel. Anything that people with disposable income purchase with their ‘discretionary spend’ can be considered as consumption. This includes consumer durables (white goods like washing machines, refrigerators, etc), cars, footwear, all forms of restaurants, etc. Hence it will be difficult to paint with a broad brush, on what is a secular trend and encompasses a wide spectrum of products and services.
A festival season alone does not make a stock run. It is true that festive demand increases the sales of many consumption oriented businesses. However, that is not always a trigger for all consumption stocks to run up. When evaluating how to invest in consumption stocks, savvy investors often look at the Year on Year growth in topline and bottomline, which removes seasonality of growth.
We would advise investors to add high quality consumption stocks throughout the year. And more so when market sentiment is down. Sectors are related to kitchen appliances, electrical goods look interesting to us. These are benefiting from the tail winds of government push on cooking gas and infrastructure in the hinterland. Ancillary B2B industries like packaging, chemicals are suppliers to most consumption businesses. This makes them interesting to evaluate and take positions in.
When we look back over the past decade or so, we have seen a common trend. A basket of consumption stocks has been able to not only preserve wealth but also create wealth. This would be even more true over the next decade. This decade is likely to see a major transition in the Indian economy and consequently its consumer spending.
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