The great Indian Consumption Story is also an Investment Opportunity

As India progresses towards the era of Amrit Kaal, the consumer sector is about to progress through a significant tipping point. Recently, India has achieved the impressive milestone of becoming the world's 5th largest economy and is now actively working towards the ambitious objective of attaining a $5 trillion economy by FY27. Furthermore, India has set an overarching goal of becoming a developed nation by 2047, coinciding with the centenary celebration of Indian independence.

Over the past decade, the share of India's domestic private consumption in GDP has grown at a faster pace than the overall nominal GDP, accounting for approximately 59% of the total. The breakup of Private consumption is given below:

India's consumption pattern shows a significant skew towards food, with a 32% share, followed by transport at 16%, housing and utilities at 13%, and clothing and health with approximately 5% each. In comparison, the United States' consumption pattern has only 8% allocated to food, with the highest component being housing and utilities at 21%, followed by healthcare at 16%. This indicates that the average Indian consumer currently spends more on necessities and less on discretionary items, comfort, and luxury when compared to consumers in developed countries. The consumer in India is also evolving and with increase in per capita income, the consumption may also shift from roti, kapada and makaan to yeh dil chahe more.

The consumption landscape in India is influenced by several key factors :

India’s consumption at an inflection point: Countries like China, Indonesia and Brazil saw a sharp acceleration in consumption post US$2,000 mark in per capita income.

Demographic dividend and increased urbanization: India to benefit from a relatively young population, coined as the 'Amrit Peedhi', and life style spending may increase as they enter their prime earning and spending years.

Premiumization across consumer categories: Changing income pyramid and higher disposal income is leading to premiumization. Also, rural consumers are emulating their urban counterparts, leading to the emergence of 'rurbanization,' where urban-centric products are made available in rural markets.

Increased formalization of the economy: The ongoing formalization of the Indian economy is resulting in organized players gaining a larger market share.

Digitization and evolving consumption patterns: Digitization has improved access to products and services, potentially expanding the consumer base.

Note: Sectoral / thematic funds are funds that are focused on specific sectors/themes such as non - cyclical consumer theme. Sectoral / thematic funds carry relatively higher risk as compared to diversified equity funds; thus, one should take controlled exposure to such funds. For more details refer HDFC Non-Cyclical Consumer Fund presentation. Source: Various publicly available sources

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