India, one of the fastest growing large economies in the world has elevated millions of families from poverty to the middle class. India is expected to be the growth engine of the world in the next few decades.
India’s ascent has led to increased incomes which in turn leads to increased consumption which boosts the economy. It’s a virtuous cycle. The growing consumption will benefit Indian companies. The objective of this post is to examine sectors of the economy which could benefit from rising incomes.
But, it’s difficult to predict what the consumption trends will be 5-10 years from now. Hence, I’ve tried to assess trends in China which experienced tremendous growth, especially in the past 15 years. Trends in China can then be extrapolated in context of India.
On having a fair idea of the sectors expected to outperform we can study the companies in those sectors and study their investment worthiness.
So, let’s embark on this journey.
For China, I’ve considered the period between 1995 and 2011, which is when China grew by leaps and bounds. An examination of this time duration should give us a fair idea on most parameters.
POPULATION:
Between 1995 and 2011 China’s population grew by 11.23%.
But, the drastic change, was in the proportion of residents in urban areas.
In 1995, 70.9 % of the population lived in rural areas.
But, in 2011, just 48.7% of the population lived in rural areas.
China had become a largely urban country.
And, this migration isn’t restricted just to China.
As the economy grows urban population has been observed to go up.
Life expectancy also increases.
EMPLOYMENT:
Between 1995 and 2011, the share of primary sector in the economy went down significantly and secondary and tertiary sectors grew.
The number of self employed individuals increased by almost 250%.
The average income increased by almost 650% in 16 years.
And, this elevation in income fuelled the economy.
ENERGY CONSUMPTION:
With increased income increase in energy consumption is expected.
Energy consumption in China between 1995 and 2011 rose by 165%.
The obvious beneficiaries are energy companies.
For example- Tata Power, Reliance Power, Adani Power, NTPC.
Source of Energy:
The major source of power between 1995 and 2011 was coal. But, the contribution of natural gas to energy production steadily rose from 1.9% to 4.3%.
Beneficiary- Mahanagar Gas
FINANCIAL SERVICES-
The per capita disposable income in urban areas quintupled between 1995 and 2011, from around 4200 to 22000 yuan.
The deposits in banks in China increased by 1060% between 1995 and 2011.
Fixed deposit amounts grew by 650% and savings accounts deposits increased by 2000%
Beneficiaries: Banks (SBI, Kotak Mahindra, ICICI,etc)
HOUSEHOLD EXPENDITURES:
As incomes rose, expenditure also rose.
Food contributed the most to consumption expenditure.
Almost 37% of total consumption expenses are on food.
Between, 1995 and 2011 the absolute expenditure on food increased but as a percentage of income the share of food decreased.
The biggest rise in the share of expenditure was of transportation and healthcare.
Reason possibly being that urbanisation led to increased travelling within the city to work. And, healthcare expenditure rose because of increased consciousness for health, welfare of self.
Expenditure on recreation also rose.
Beneficiaries-
Healthcare-Diagnostics chains like Thyrocare, Dr. Lal Path Labs, Hospitals.
Recreation- Theme park chains like Wonderla, cinema chains like PVR.
Also, spending on restaurant food increased substantially.
FOOD EXPENDITURE:
Between 1995 and 2011, incomes in China rose, standard of living improved and eating habits changed.
The biggest beneficiary of increasing incomes was milk.
Consumption of milk almost tripled.
From 4.62 kg to 13.7 kg per capita.
Also, poultry consumption rose by 166% and meat consumption rose by 60%.
Aquatic products consumption rose by 58%.
Edible vegetable oil consumption grew by 30%. Fruit consumption grew by 25%.
For other food products the growth wasn’t significant or there was degrowth.
Beneficiaries- Dairy companies like Heritage Foods, Prabhat Dairy, Parag Milk Foods.
Poultry companies like Venkys.
POSSESSION OF CONSUMER DURABLES-
In China, between 1995 and 2011, ownership of motorcycles increased by 289%.
Microwave ownership went up by 244%.
Water heater possession rose by 196%.
Refrigerator ownership rose by 46% and TV set ownership rose by 50%.
But, the larger increase was in Air conditioner ownership.
There was a mind boggling 1400% rise in Air conditioner ownership.
There’s even more, automobile ownership went up by a mind numbing 3600% between 2000 and 2011.
Expected Beneficiaries( in India) - Maruti Suzuki, TVS Motors, Hero Moto, Bajaj Electricals, Havells, Whirlpool, Voltas, Blue Star
DEVELOPMENT OF CITIES:
In China, between 1995 and 2011, area of land for urban usage rose by almost 90%.
Natural gas supply rose by 900%.
Consumption of natural gas for residential use rose by 700% and gas pipeline network rose commensurately.
Length of paved roads rose by 140% and length of city sewage pipes more than tripled. As cities got bigger, waste produced was more. Hence, an extensive network of sewage pipes was required.
Expected Beneficiaries (in India)-
Road construction companies, natural gas suppliers, natural gas supply pipe manufacturers, sewage pipe manufacturers.
Now, most of the trends presented above are for urban areas. But, trends in rural are by and large similar.
I’ve tried my best to minimise errors.
If I’ve erred my apologies.