From fast food to autos, India's digitally connected users lure investors

Delhivery

03/04/2023 02:30

By Ira Dugal and Ankur Banerjee
       MUMBAI, April 3 (Reuters) - Mumbai resident Shivam Vahia
cannot remember the last time he left home to shop. He spends
about 30,000 rupees ($364) a month buying necessities like
groceries, clothes and gadgets, all by tapping a few buttons on
his mobile phone.
    "My only offline spends are bars and restaurants, when I go
to meet friends," said the 24-year-old engineering graduate.
    Vahia is one among India’s young and aspirational 1.4
billion population, whose propensity for online spending has
attracted global companies and digital platforms. And as private
consumption underpins economic growth in India, financial
investors are targetting new ways to tap into it.
    China saw a jump in consumption from 2006 when, as per World
Bank data, its per capita gross domestic product (GDP) crossed
$2,000. India crossed that threshold in 2021, according to the
bank's latest available data, which could put it on a similar
growth trajectory even though weak job growth and income
inequalities in the country pose a risk to this outcome.
    With the cheapest mobile data rates in the world, thanks to
intense competition among telecoms providers, and the explosive
growth of social media and personal entertainment, Indian
consumers are going digital at a breakneck pace.
    It has nearly 700 million smartphone users, who, rating
agency ICRA estimates, consume an average of almost 17 GB in
mobile data per day, higher than the 13 GB in China and the 15
GB in North America.
    "An urban consumer in India can see what consumers are
consuming in developed countries and a rural consumer can see
what an urban consumer is doing. This aspiration-led consumption
boost has the potential to provide a material fillip to
discretionary consumption in years to come," said Priyanka
Khandelwal, fund manager at ICICI Prudential Asset Management.
    
    
    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  ZOMT.NS , FSN E-Commerce Ventures  FSNE.NS ,
which runs beauty and fashion sales platform Nykaa,
SoftBank-backed logistics firm Delhivery  DELH.NS , and payment
firm Paytm  PAYT.NS , 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    https://tmsnrt.rs/3JizE9d
India consumer stocks trade at high valuations    https://tmsnrt.rs/3lQoMGV
India telecom data usage has risen steadily    https://tmsnrt.rs/3G5zqk2
Performance Of Consumer Stock Indices    https://tmsnrt.rs/3FZDqlW
India digital economy stocks have fallen sharply since listing  
 https://tmsnrt.rs/3JXtivm
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 (Reporting by Ira Dugal in Mumbai and Ankur Banerjee in
Singapore; Editing by Vidya Ranganathan and Muralikumar
Anantharaman)
 ((Ira.Dugal@thomsonreuters.com; +91-9833024892;))