PHYSICAL TO DIGITAL For investors, not only new-age Indian tech companies but also traditional consumer firms that are adding digital capabilities offer a route to tap the consumption theme. Opportunities for gaining exposure poured in for them when platforms that cater to online commerce, including food delivery specialist Zomato , FSN E-Commerce Ventures , which runs beauty and fashion sales platform Nykaa, SoftBank-backed logistics firm Delhivery , and payment firm Paytm , listed recently in the Indian markets. Bain & Co estimates that India's online shopping market hit $50 billion in 2022, with an online shopper base of 180-190 million - the third largest in the world after China and the U.S. "Investors can play the online and digital consumption boom in India directly via the tech companies enabling this space, or indirectly via supported industries such as logistics or fintech," said Kunjal Gala, head of global emerging markets at Federated Hermes. Traditional businesses currently suffering from poor penetration and low per capita usage offer another promising avenue for investors. India's per capita consumption of food was at $314 in 2020 compared to $884 for China, while that of clothing stood at $53.9 versus $212.9 for China, data from CLSA showed. Per capita spending on health related items in India was $56.8 in 2020 and $389.3 for China, the data showed. "A pattern will continue to repeat for years in India: industry after industry emerging from a long period of under-penetration" and moving up the per capita consumption scale, said Vikas Pershad, portfolio manager for Asian equities at M&G Investments.
"The range of industries will span healthcare delivery (hospitals) to cars and two-wheelers to housing finance companies and cement." As the incomes and wealth of Indians rise, their aspirational needs will see demand ramp up for packaged food and beverages, branded goods, travel, preventive healthcare, and personal care, said ICICI Prudential's Khandelwal and the fund's chief investment officer S Naren.
FOREIGN INVESTORS JUMP IN With private consumption accounting for 60% of India's $3.5 trillion GDP, foreign portfolio investors have been quick to latch on. They pumped in a net $2.7 billion in four key consumption sectors - automobiles, consumer durables, consumer services and FMCG, in the first 11 months of the financial year 2022-23 (April-March), according to data from India's National Securities Depository Ltd. In contrast, the broader Indian equity markets saw an outflow of $5.9 billion. To be sure, it has not been all smooth sailing for investors as they chased India's consumption boom. Shares of the new-age technology companies have tumbled since their listings, and while they now trade at more reasonable valuations, they are still pricey compared to the industry median. And most traditional consumer-focused companies also trade at valuations above the benchmark index.
Indian equities remain quite expensive both on a historical and relative basis, compared to China, for instance, said David Chao, global market strategist at Invesco Asia Pacific, who sees "outsized" growth in segments like quick service restaurants and consumer durables.
But investors have to look beyond that, he said. "To be an investor and make money in India, you have to take a longer time horizon." ($1 = 82.3340 Indian rupees) <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Digital access alters India consumption habits India consumer stocks trade at high valuations Performance Of Consumer Stock Indices India telecom data usage has risen steadily India digital economy stocks have fallen sharply since listing ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Ira Dugal in Mumbai and Ankur Banerjee in Singapore; Editing by Vidya Ranganathan and Muralikumar Anantharaman)
