How investing in consumer sector gives you exposure to evergrowing segment of economy

Published: October 4, 2019 1:52:44 AM

Investing in a consumer-focused fund gives you exposure to the ever-growing segment of the economy, the fundamental attributes of which are high cash flows and healthy balance sheets

consumer sector, RBI, Going for Gold, CAGR, employment, GDP per capita, economic growthIndia’s economic growth has its seeds in its demographic dividend, under-penetration of consumption of goods and services and increasing per capita incomes.

By Sonam Udasi

If you look at the news today, you’d be forgiven for thinking slowing consumption is the fifth horse of the economic apocalypse. There are stories of how sales of everything from biscuits to cars are slowing down.

To cut through all this gloom and doom, there is a simple way to see how teh public currently looks at its own current and past consumption: The RBI’s Consumer Confidence Survey. Every quarter, the RBI conducts this survey in 13 major cities with thousands of respondents answering questions on the general economic situation, the employment scenario, the overall price situation and their own income and spending.

However, if one looks at the granular data in the survey, there is one oddity that immediately jumps out: consumers are still confident about increasing spending in the future. While perceptions of current and future spending have fallen, they are hardly at the lows they reached between September 2013 and December 2014.

So, you may ask, why is there a general description of a malaise. This is because while customers are keeping up spending on essentials such as staple foods and household products, it is discretionary spending such as that on cars and two-wheelers that have fallen. However, general spending levels hold up because consumers tend to maintain spending on essentials, which is the key component of the wallet share.

Investing in consumption sector

India’s economic growth has its seeds in its demographic dividend, under-penetration of consumption of goods and services and increasing per capita incomes. Consumption in India has grown at a strong pace and is likely to continue its growth trajectory in the next 10 years.

As per a BCG report titled ‘Going for Gold’ dated February 2019, the consumer market in India is estimated at Rs 110 trillion in 2018. Domestic consumption has grown at the rate of 13% in the last decade and is expected to maintain a similar run rate of 12% CAGR to reach Rs 335 trillion by 2028. The report also states that the above growth will be driven by increasing population, higher affluence, continued urbanisation, shifting family structures and the emergence of Gen I.

Investing in a consumer-focused fund gives you exposure to this ever-growing segment of the economy, the fundamental attributes of which are high cash flows and healthy balance sheets. India is clearly well-positioned to reap the benefits of demographic dividend. The structural drivers expected to drive consumption growth: Evolving middle class, exponential growth in GDP per capita and urbanisation. Consumer sector growth has a high correlation with strong economic growth. Hence, we believe, an improving macroeconomic environment is expected to give a thrust to consumer sector growth.

Low market penetration, particularly in the rural areas, presents a significant opportunity. India’s nascent retail sector is expected to post high growth relative to the developed markets. There exists significant scope for increase in organised retail penetration across categories, especially in segments like home decor, furnishing, beauty and personal care where the gross margins are also lucrative.

The writer is senior fund manager, Tata Mutual Fund. The views are personal

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