Goldman Sachs Group Inc., in a report released January 12, projected that India’s “wealthy” class is expected to reach 100 million people in the next three years . He said this would allow the country’s premium products companies to perform better than their broader competitors.
The report titled The Rise of ‘Rich India’ said strong economic growth, stable monetary policy and strong credit growth over the past decade have fueled purchasing power of high-income Indian students. He added that 60 million people, or 4.1% of the population, now earn more than $10,000 a year, up from 24 million in 2015. This is certainly a small percentage of the total population.
Who understands “Rich India”?
Goldman Sachs has classified the richest 4% of India’s working-age population, whose per capita income exceeds $10,000 per year, as “Rich Indians”. They contrast with India’s per capita income of about $2,100. The “rich India” group, with about 44 million people of working age, is expected to reach about 60 million considering the total population of 1.42 billion.
This growing demographic, comprising approximately 60 million consumers and 12-14 million households, reflects the widespread adoption of discretionary products and services in India. The report highlights notable statistics including approximately 40 million air travelers per year, approximately 30 million monthly users interacting with online food aggregators, 30 million broadband connections and about 26 million international tourists depart from India each year.
The strong wealth effect is a factor
The report notes that the increase in wealth comes from a variety of factors. India’s market capitalization has grown more than 80% in the past three years, driven by growing retail participation. From 2020 to 2023, gold prices also increased significantly by 65%. As a result, the total value of India’s stock and gold holdings increased from $1.8 trillion to $2.7 trillion. Real estate prices have notably increased by about 30% between fiscal years 2019 and 2023, in contrast to the 13% increase observed between fiscal years 2015 and 2019.
He added that growth in the ‘affluent India’ segment is expected to drive sustained expansion in luxury consumption, categories such as entertainment, jewellery, dining out, care Healthcare and luxury brands in various sectors are the main areas. beneficiaries.
On the equity side, the report identified a strong preference for brands and network expansion efforts such as Apollo, Devyani, Eicher, MakeMyTrip, Phoenix , Sapphire, Titan and Zomato. Research shows that companies targeting high-end consumption are growing faster than those targeting large-scale consumption.
Over the past 12 months, stocks on Goldman Sachs’ ‘Rich India’ list have seen consensus estimates for their fiscal 2024 revenue rise 7%, while overall consumer stocks decreased by 3%. India emerges as the third largest economy by 2027.
The International Monetary Fund (IMF) predicts that India, currently the world’s fifth largest economy, is on track to become the third largest by 2027. This growth is due to growing purchasing power. rise of the middle class, especially benefiting companies that provide high-priced end-brand services. in entertainment, jewelry, outdoor dining and healthcare, according to Goldman.
Goldman’s report highlights significant increases in the value of financial and physical assets in India over the past three years, contributing to the country’s growing wealth. While traditional assets such as gold and real estate remain important, over the past five years there has been a significant trend of households investing in equities through direct stocks or mutual funds.
What drives profits?
The top three asset classes with notable growth in value from 2019 to 2023 are gold, stocks and real estate. Stocks and gold had the most significant gains, with real estate prices rising at higher levels over the past 3-4 years.
The market capitalization of the Indian stock market increased by 80% between January 1, 2020 (just before the market crash due to COVID-19 pandemic disruptions) and January 1, 2020. January 2024. During this period, the participation of retail investors is increasing. Indian stock market.
The number of ‘demat accounts’ has increased from around 41 million in FY20 to around 114 million in FY23. Furthermore, savings flow Household flows into equities have increased significantly since fiscal 2017, remaining at persistently high levels between 2017 and 2023, indicating growing and sustained participation in the market stocks in the context of sharply increasing profits.
Consumers own stocks through direct retail holdings and mutual funds, both of which have grown in recent years. Total direct retail investor participation in the BSE 200 increased from 8.5% in December 2019 to 9.8% in September 2023, while mutual fund participation in water increased from 8.1% in December 2019 to 9.2% in September 2023.
Additionally, Indian households own about 25,000 tons of gold, accounting for about 10-11% of the world’s physical gold reserves, according to the World Gold Council. Gold prices have increased from an average of ₹39,900/10g in January 2020 to an average of ₹62,200/10g in December 2023, an increase of about 65%.
The total value of household gold reserves in India increased from $1.1 trillion to $1.8 trillion between 2019 and 2023, contributing significantly to the growing wealth effect in “India is rich”.
Although real estate prices have not increased as strongly as gold and stocks, the growth rate of real estate prices in India has changed clearly in recent years. According to Propequity data, average real estate prices in India rose about 30% in the 2019-2023 financial year, compared to a slower rise of about 13% in the 2015-19 financial year.
The spending power gap still exists
However, despite overall economic growth in India, a purchasing power gap persists between top earners and the middle class. According to the report, with a per capita GDP of less than $3,000 a year, only 30 million Indians can afford a car, even though more than 960 million debit cards have been issued and 93 million people have pay phone connections after.
This shows that while some sectors are booming, challenges related to income inequality and access to basic amenities persist in India’s growing economy.
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