Friday, 7 June, 2013

Changing Spending Patterns ...

India getting richer, and what it means for us ...

I read a couple of news items on a single day:

  • Swift D'zire overtakes Alto as the largest selling car in the Indian automobile market in the month of May
  • Three brands of Hindustan Unilever, including the "Premium" brands of Dove and Ponds become 1000 crore brands!

What struck me was a clear case of "Premiumisation", if I may coin such a word..., that's going on in India. 

Obviously, more and more people are willing and keen to buy costlier brands and enjoy the good things in life. And are able to do so. This implies that despite the apparent gloom and doom scenario that we see in the newspapers both at a global level and in India, the ground reality in India is different. A rather large number of people are able to buy what was once upon a time considered either luxury items or conspicuous consumption.

When we go out anywhere, we'll see anecdotal evidence of the above trend. In the past couple of years, I've seen huge crowds at a wide variety of places, the only common thread being that all these places involve spending significant sums of money:

  • Malls and shopping complexes
  • Theatres and Entertainment theme parks
  • Corporate hospitals like Apollo, Fortis, etc.
  • Gyms
  • Music concerts
  • Airports
  • Five & Three star hotels
  • Jewellery shops
  • Private Educational Institutions which charge a ton of money
  • Bank branches of private sector banks like HDFC Bank, ICICI Bank, etc. (which insist on a huge minimum balance and target richer customers)
  • Shops selling electronic gadgets like mobiles, tablets, laptops, etc.
  • Air-conditioned Compartments of trains

Well, at one plane, all the above is actually great news for Indians. On the other hand, it can have a potentially disastrous implication for India as well. In this post, I'll focus on the positive side:

  • With all that money being spent, it is obvious that the economy is recovering and recovering fast. This is irrespective of what the doomsayers may claim at the top of their voices.
  • Corporates who are providing all those goods and services are expanding rapidly and will not do so unless they are either profitable or hope to become profitable very soon. My own hunch is that they are ALL hugely profitable and will continue to see an enormous growth in their profitability figures.
  • This implies that their EPS (Earnings per share) has gone up significantly or will go up rapidly in the next few quarters.
  • The corollary is that the Sensex of 20000 and Nifty of 6000 in 2013 implies a much lower valuation compared to the same Sensex and Nifty levels in 2008.
  • Having had a de-facto bear market for the past few years, even in terms of the principle of reversion to mean, we're poised to take off in a big way. While the timing in uncertain as to whether it will happen in 2013 or 2014, an emerging bull market in the next several quarters is almost axiomatic.

If there is a bull market ahead, my own suggestion will be:

  • Review your asset allocation
  • Develop a positive bias towards investing in equity (ideally through mutual funds)
  • Don't sell in a hurry
  • Select either blue chips or high quality mutual funds and invest systematically each month
  • Watch out for scamsters who will be eagerly waiting to lure you in their traps. Avoid penny stocks. Watch out for corporate developments (especially negative ones). Review your portfolio at least once in 6 months but never daily or weekly.

Enjoy life. Enjoy the returns from safe and sound investing. Be happy.



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sushmitha said...

Informative post Sir.

Soumabha Roy Chaudhuri said...

In the new Forbes' list of Wealthiest Athletes Dhoni ranks 16th with all the sponsorship deals and advertisements. This truly reflects that India's spending power has increased as he leaves even the likes of Fernando Alonso and Rafael Nadal behind him.

RAM said...

I cannot BUT agree with you. Yes the spending is very conspicuous & deliberate. I think a few do this in spite of their incapability to do so either for the kicks or for "showing off". The latter is definitely NOT good.


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