It is forecasted that the honorable Finance Minister of India, Smt. Nirmala Sitharaman might reduce the income tax rates for the current fiscal year in the upcoming budget. It is done so, because they’re expecting inflation.
During inflation, lower income tax rates promote consumption. Thus, driving the consumptions stocks. Why? Because staples and consumer durables are agnostic to the systematic risk.
This article delves into the consumption pattern in India, particularly in the context of the stock market, and offers insights for investors and analysts.
One common thread is the growing middle class, which is increasingly becoming a driving force in the economy. According to a report by the Boston Consulting Group (BCG), India’s consumption market is expected to triple by 2030, driven by urbanization, higher disposable incomes, and the rise of nuclear families.
This shift is not just a demographic change but a significant economic opportunity.
The Indian middle class, comprising around 300 million people, is at the forefront of this consumption revolution. With rising incomes and changing lifestyles, the middle class is spending more on discretionary items, such as automobiles, consumer durables, and luxury goods.
This trend is reflected in the stock market, with companies catering to the middle-class consumer seeing a surge in their stock prices.
The Two-Speed Economy
However, it’s not all rosy. The consumption pattern in India is bifurcated, with a sharp divergence between the super-rich and the middle-class. While the super-rich continue to splurge on luxury goods, the middle-class is more price-sensitive.
This two-speed economy is reflected in the stock market, with luxury brands outperforming consumer goods companies catering to the middle-class.
Another key factor influencing the consumption pattern in India is the rural-urban divide. While urban areas are witnessing a surge in consumption, rural areas lag behind.
This is due to the higher disposable incomes in urban areas and the greater availability of products and services.
However, with the government’s focus on rural development and increasing connectivity, this gap is expected to narrow in the coming years.
Winners
1. Consumer Durables: Companies like Titan, Voltas, and Havells are expected to benefit from the rising middle-class consumption.
2. Automobiles: With the middle-class aspiring for better mobility, companies like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra are poised for growth.
3. Retail: The growth of e-commerce and the rise of organized retail are expected to benefit companies like Reliance Retail, Trent, and Avenue Supermarts.
How does it affect the celebrated stocks? Well, it’s like asking how does change in the weather affects the mood of people at party. In short, a lot.
Let’s break it down company by company, shall we?
Titan: This one’s all about the bling. As the economy goes, so does the demand for luxury watches and jewelry. When people have more money in their pockets, they’re more likely to splurge on a shiny new piece from Titan.
But if the economy takes a downturn, well, let’s just say people might opt for a more budget-friendly accessory. Caratelane business is growing super fast which is good for titan.
Trent: This is all about the retail therapy. Trent, with its Westside and Zudio stores, relies on people feeling good enough about their finances to go on a shopping spree. If the economy is booming, Trent is likely to see an uptick in sales.
But if people are tightening their belts, Trent might have to wait a bit longer for those tills to ring.
But not only these stores, Trent is expecting a good growth in their another business line — Star Bazaar. Just like Zudio grew significantly, I am expecting Star Bazaar to have similar strategy.
Key point of competition between Dmart and Star Bazaar will be — that Dmart focuses on everything. You have everything in one store. However, star bazaar is more like your go-to grocery store.
And if you can sell groceries at less than or equal to a regular Kirana store, all just plays out in the volume game.
Avenue Supermart: This is the go-to place for all your grocery needs. As the saying goes, “everyone’s gotta eat.” So, Avenue Supermart’s performance is less affected by the economy’s ups and downs.
Nestle: The Swiss giant of the food industry. Nestle’s performance is also somewhat shielded from economic fluctuations, thanks to the essential nature of its products.
People will still buy their favorite Nestle chocolate bars or Maggi noodles, regardless of the economy. However, if things get really tough, even the most loyal Nestle fans might switch to cheaper alternatives.
People will still need to buy food, no matter what. But if people are feeling the pinch, they might opt for cheaper alternatives or cut back on non-essential items.
Understanding the consumption pattern in India is crucial for investors and analysts looking to navigate the Indian stock market. The rise of the middle class, the two-speed economy, and the rural-urban divide are key factors to consider.
While there are clear winners and losers, the overall trend is positive, with the Indian economy expected to grow at a robust pace in the coming years. As the saying goes, “In India, the consumer is king.”
Thanks for reading all the way.
Love you all.
Originally published at https://chroniclebrews.substack.com.
