Stock market investment is all about catching a trend early on and making timely investments to benefit from the ensuing rally. One such theme which is emerging to be largely evergreen is the consumption space. Over the past decade, several of the consumption pockets have delivered rich returns, but the story is far from over.
Post-COVID recovery
India has been a consumption-led economy. The demand in consumption-related sectors such as auto and white goods is expected to go up as India aims at being a $5 trillion economy from the current $2.6 trillion economy currently. Over the years, India has been steadily emerging as the growth engine of the world.
Domestically also, consumption-led sectors such as travel, entertainment and consumer appliances are in the recovery mode as median household income and private consumption is estimated to go up.
Private consumption slipped to 55.8 percent of the nominal GDP in the June quarter of the financial year 2021-22, compared with 60.38 percent in the same quarter of the previous financial year. It was at 59.2 percent in the previous quarter. The pent-up demand is expected to boost private consumption, going forward. It had been growing faster than the GDP before the pandemic hit the economy.
Globally, it has been observed that the moment a country’s per capita GDP crosses $2000, there is a disproportionate rise in discretionary spending. For example, China’s per capita GDP crossed this mark in 2006. The country recorded 2.6 times jump in consumption expenditure over the next five years since 2006. This trend is likely to lay out in India too.
The millennial magic
The social structure is changing. If a black and white TV, fan and bulb were a common sight in most households in the 90s, one would find laptops, smart TVs, smartphones, Wi-Fi to cars and washing machines in every household now. The millennial population is aspirational. Urbanisation is happening at a significant rate. It is expected to improve to 40 percent by 2030, which is hovering above 30 percent for now.
Millennial Indians is increasingly redefining the consumption story. They account for about 35 percent of the population in India. Data shows the population of Indians born between 1980 and 2000 is 450 million, which is the highest in the world.
The millennial population is different from their parents. Their lifestyle choices and consumption pattern reflect preference towards branded items and convenience. This gives hope to retailers in the consumer market globally to tap the Indian population.
How to play the consumption story?
When it comes to investing, picking individual stocks, and keeping track of them is no easy step. For an investor looking to tap into the India consumption story, one of the easiest approaches is to invest in the constituents of the Nifty India Consumption Index that comprises the companies representing the domestic consumption sector which includes donsumer non-durables, Healthcare, Auto, Telecom Services, Pharmaceuticals, Hotels, Media & Entertainment, etc. Only those companies that earn more than 50 percent of revenue from domestic markets such as D-Mart, Titan, Maruti Suzuki and Voltas, etc. can be a part of the index.
For a retail investor, gaining access to the India consumption story in a cost-effective manner is through the ETF route. An investor can consider investing in an ETF that has the Nifty India Consumption Index as its underlying index. Compared to buying individual stocks, this is a much more cost-effective and convenient approach to investing in a particular theme. Just by a single click, you will have a well-diversified consumption portfolio. The index is periodically rebalanced to capture the changing trends among the index constituents to capture the upside potential.
One of the latest offerings in this space is the ICICI Prudential Consumption ETF with an expense ratio of 0.2 percent. There are two other comparable offerings on this theme from Nippon India and Axis Mutual Fund whose expense ratios are 0.35 percent and 0.33 percent respectively.
Given the sizeable young population, rise in rural and urban middle class coupled with increasing income levels, the consumption theme is one which is likely to play out over the next decade.
(Ashok Kumar is a Chartered Accountant and heads LKW India)
