Wealth growth is seen through increased individual participation, increased investment in the Indian stock market, and purchases of gold and real estate.
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Rising disposable income will accelerate consumption in India, further boosting the country’s consumption sector, which is fast becoming a major driver of economic growth.
India has relied heavily on business-to-business services and manufacturing to drive growth, but is on track to become a more consumption-oriented economy, said Abhishek Malhotra, partner in McKinsey & Company’s Mumbai office. said.
His comments came in the wake of a Goldman Sachs report last week that predicted that about 100 million people in India will become “high-net-worth individuals”, or people with annual incomes of more than $10,000, by 2027. be.
In a Zoom interview with CNBC, Malhotra said domestic discretionary spending is on the rise, and there is a strong willingness to spend on things like travel, jewelry and dining out.
A report released last week found that 60 million people in the world’s fifth-largest economy now earn more than $10,000, or about 4% of India’s working-age population. In 2015, that number was just 24 million.
Malhotra said, “When your income is low, most of your money goes to food and housing. Now that all these expenses are done, you are left with discretionary expenses,” such as travel, jewellery, services, etc. The consumer sector will continue to grow, he added. Significant growth is expected over the next 20 years.
As the number of middle- and high-income households increases, the country’s consumer market is expected to become the third largest in the world by 2027.
According to BMI data, around 33% of India’s 1.4 billion population is estimated to be between 20 and 33 years old, and BMI is helping global companies set up and expand operations in India.
Pedestrians walk past a Tata Starbucks coffee shop on Saturday, November 5, 2016 in Mumbai, India.
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For example, Tata Starbucks The company, a joint venture between Tata Consumer Products and Starbucks Corporation, announced in January that it would open 1,000 stores in India by 2028.
The coffee chain currently operates around 400 stores across 54 cities in India. Other international chains such as Tim Hortons and Costa Coffee are also reportedly trying to gain a foothold in the Indian market.
Rising incomes are also reflected in increased domestic capital inflows into Indian stocks, with the country’s market capitalization rising more than 80% in the past three years, and in December India overtook Hong Kong to become the world’s seventh largest market capitalization. It became the stock market.
In addition to increased investment, Goldman expects gold and real estate purchases to surge.
Property prices in this South Asian country rose more than 30% from FY2019 to FY2023, compared to just 13% from FY2015 to FY2019, on the back of rising housing demand. did.
Goldman said credit card spending more than doubled last year compared to 2019 due to rising incomes.
According to the report, there are about 90 million credit cards in use in India, and some people who earn more than $10,000 have more than one card. In 2019, there were only 50 million credit cards.
Kranti Bhatini, equity strategist at Wealth Mills Securities, said: “In India, there is a focus on plastic currency and digitization of payments…and the young population is a key driver of credit card growth.” .
“Young people have confidence in India’s growth story, so this participation comes from that,” Batini told CNBC over the phone.
A promising play
Shares of Indian travel companies such as MakeMyTrip and InterGlobe Aviation (Indigo) have all increased since the beginning of the year, making them Goldman’s top picks in the travel sector.
Travel spending in the world’s most populous country is expected to be the fourth highest in the world by 2030, largely due to an increase in middle-income households.
Indian airlines are ordering record planes to meet strong travel demand, ordering 150 Boeing 737 MAX jets from Akasa Airlines on Thursday.
Indiana is projected to take 5 billion leisure trips by 2030, with 99% of trips being domestic.
Indian Hotels Company, which owns 263 lodging properties across the country, stands to benefit from a surge in domestic travel, Goldman said.
Jewelry companies such as Titan and Kalyan are also among Goldman’s top picks, with both stocks up 2% and 9%, respectively, since the beginning of the year.
Goldman Sachs said food businesses such as food delivery company Zomato will benefit from growth in India’s consumer sector.
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For food delivery, Goldman favors names like Zomato, Devyani, Sapphire and Phoenix Mills.
“These companies are not only benefiting from the rise of ‘rich India’ but are also high-quality companies with strong competitive advantages, past performance and market leadership within their segments. We are watching,” the paper said.
“This gives us further confidence that they can maintain their competitive position within these high-growth categories.”
—CNBC’s Naman Tandon contributed to this report.
