By AltG Research On Behalf Of Poornima Vardhan & Taponeel Mukherjee
These are some of the NYTimes headlines over the years: "1996: Powerful but Ill-Defined: Rising India Middle Class, 2013: India's Middle Class: Growth Engine or Loose Wheel?, 2023: India Is Passing China in Population. Can Its Economy Ever Do the Same?"
Clearly, the world is divided into two kinds of people - one that spends much time discussing what and where is the next Indian middle class and the other that knows that the Indian Middle class is here and is the single biggest driver of economic growth and spends time building for them. Being in the second group is a no-brainer. As investors, entrepreneurs, and businesses, we must focus on serving this burgeoning consumer segment, creating value, and building sustainable enterprises for the future.
The Journey From 1991 to 2023:
Over the past three decades, India has witnessed remarkable growth, including in consumer products and financial services. At a basic level, Indians have got access to financial services, consumer products and communication services that have created immense market value, investment returns, jobs, economic growth and, most importantly, transformed the lives of more than a Billion people.
As India liberalized and opened up its economy in the early 1990s, the opportunities were immense for those who were able to look beyond the obvious. Victory goes to the brave, and investment returns to those that can have a variant perception of the market. As the 1990s passed, India saw businesses emerge amongst many new sectors, such as telecom, energy, and consumer goods, that dawned upon the country.
The newly emerging middle class in the 1990s is the fundamental driver of the consumption economy of India. Here are the numbers to prove this:
Even though One can't compare the market capitalizations for investment returns since dividends need to be adjusted, no one can argue just how transformational consumption has been over the last 30 years for the Indian middle class with rising incomes, increasing opportunities and better living.
The opportunity that London-based Unilever has been able to tap into through HUL and the changing dynamics shows just how much of an impact a rising Indian middle class has had. In 2001, HUL, with a market capitalization of $6.1 Billion, was the equivalent of 17.75% of Unilever's then market capitalization of $34.25 Billion. Today with a market capitalization of $76 Billion, HUL’s market capitalization is almost 57% of Unilever's $134 Billion market capitalization. The Unilever example shows that India will be the most crucial driver of growth and opportunities for many global businesses.
At the outset, let's be clear, market capitalizations in no way capture the full impact of economic growth. However, the tectonic shifts in market capitalizations and the comparisons put in perspective just how monumental has been the growth, transformation and trajectory of the Indian markets driven by the much debated "Middle Class".
A macro view of these market capitalization trends tells us about the transformation in consumption. Every loan taken, every shampoo consumed, and every packet of biscuits eaten has resulted from the ever-rising Indian middle class.
So what will the Indian middle class consume next?
Financialization and Consumption:
As the first phase of financialization in India completes, the next phase holds even greater promise. The convergence of consumption and financialization will drive massive growth and open up unprecedented opportunities. It is important to acknowledge the rising incomes and evolving consumer preferences as India transitions towards rising discretionary consumption and beyond basic savings and credit. Businesses and investors who are attuned to these shifting dynamics stand to benefit immensely.
Serving the Self-Employed Consumer:
One aspect that often goes unnoticed is India's vast population of self-employed individuals. The dynamics of this segment are often misunderstood by many "pundits". However, it presents a goldmine of opportunities for those who comprehend its potential. Companies like Capri Home Loans and Shubham Housing Finance have successfully tapped into this segment, providing tailored financial services that cater to the unique needs of self-employed individuals. The ability to recognize and serve this "hidden" consumer base is a testament to the immense growth potential within India's middle class.
The Future is Here:
India's middle class has arrived and has been fundamental in driving investment opportunities. The Indian consumer market is the single most significant investment opportunity of the 21st Century. The rise of discretionary consumption and the increasing sophistication of financial services will continue to reshape the Indian economy, opening doors to new and exciting prospects. As investors, entrepreneurs, and stakeholders, it is imperative that we recognize the power of India's middle class and seize the opportunities it presents.