China is inevitably part of any conversation about global consumption. But it’s not the only story – by a long shot.
With good reason, the incredible explosion of wealth in China (which we’ve written about extensively… here, here, and here for example) has been a big focus for investors.
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That’s what happens when extraodinary economic growth lifts nearly 250 million people out of abject poverty, and catapults them into the ranks of the middle class.
Ad it’s gone so far that by some measures, people in China are actually better off than people in the U.S.
Meanwhile, relatively low levels of indebtedness (a household debt-to-GDP of just 48 pecent, compared to 79 percent in the U.S.) suggests that – if they wanted to – people in China could consume a lot more.
This means that domestic consumption in China will continue to be a big investment theme. But there’s another consumer market that’s just coming of age. It’s like China a dozen years ago.
India’s consumer story is just starting
With a population of nearly 1.1 billion, India is the second-largest market in the entire world.
It’s the largest English-speaking nation on the planet, making it fertile ground for Western consumer brands. Like the Chinese, Indians are very tech-savvy, as we’ve already witnessed from their business process outsourcing and information technology (IT) services boom of the 1990s and early 2000s.
Not long ago, some of the largest publicly-traded US tech stocks included Indian companies, such as Infosys, Satyam, and Wipro.
Today, India’s services sector accounts for 54 percent of total economic output, and is growing at almost 7 percent each year. This is important because the service sector generates higher-paying jobs in fields like finance, banking, technology, insurance, real estate, and construction.
Like China about 20 years ago, India today has an enormous and young labour force, with more than half percent of its population under the age of 25.
China’s pool of young people, by contrast, has dwindled to just 30 percent of its population.
India has one of the lowest official household debt-to-GDP of any nation at just 9.4 percent. Even if informal lending is factored in, and the actual level is around double that, Indian household debt is still extremely low.
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(Household debt reflects plastic card debt, mortgages, and car loans. A low household debt-to-GDP ratio is typical of a developing economy where the middle class is still growing fast.)
Meanwhile, Indians also have one of the highest household savings-to-GDP in the world, at 28.9 percent, according to the World Bank. That reflects how much money they have to spend. It’s lower than China’s 46.5 percent household savings-to-GDP, but almost twice the rate in the U.S. (16.9 percent).
And India also has one of the world’s fastest-growing per capita income, increasing an average 7.6 percent annually over the past decade. At that rate, their earnings will double in less than 10 years.
Indian consumers are spending more
China’s economy has grown nearly 20-fold since 1980. India isn’t on that track… but already, a quarter of a billion people in India has risen from poverty thanks to the economy’s strong growth.
It’s this rising new middle class population that’s fuelling the growth in domestic consumer spending, which has more than doubled over the last 10 years on a per capita basis.
If per capita consumer spending only reaches half the level as China, the Indian consumer market will be worth a monstrous US$2.2 trillion. That’s equivalent to domestic consumption in the U.K. or Germany.
Boston Consulting Group’s Center for Customer Insight even has a more bullish forecast, with Indian domestic consumption hitting US$4 trillion by 2025. That would be equivalent to about half of the size of China’s market by that time.
All these point to a doubling or tripling of India’s consumer market in just the next 8 years.
It’s also a very plausible estimate given that total domestic consumption has grown by an average of 9.8 percent annually from 2012 to 2016.
Moreover, consumer confidence surveys show that Indians are very confident about the future. And that’s bullish for spending.
We’re already seeing this confidence manifest itself in record car sales, a 120 percent increase in TV sales last year, and a domestic travel market that’s grew 23 percent in February alone – twice the global average.
This is why India is such a big up-and-comer in global consumption. We’ll be keeping a close eye on this market for opportunities to profit from well-placed companies.
Good investing,
Brian Tycangco
Editor, Stansberry Churchouse Research
