India's Wealth Boom and the Luxury Wave in Markets

Kotak Insights | 25/01/2024

India is witnessing a rise in affluence.

A recent report by Goldman Sachs states that India's affluent class is expanding at a pace that could reshape the economy. Currently, around 60 million people earn approximately Rs 8 lakhs per year. And this figure is expected to soar to 100 million by 2027.

This increase is more than just numbers; it represents a shift in consumption patterns driven by a growing affluent class influencing market trends and product features.

The evidence behind this rise is as compelling.

Income tax filings reveal a 19% annual increase in individuals declaring over Rs 10 lakh income, outpacing the overall tax filing growth. It’s because the rise in the number of tax filings has grown only by 8%. Goldman Sachs’ report expects this trend to continue.

Adding to this, a Knight Frank report projects a 50% growth in high net-worth individuals (HNIs) in India between 2020 and 2025.

SBI Research also found a trend where they stated that the weighted mean income a decade ago in India, which was around Rs 4.4 lakhs, has now grown to Rs 13 lakhs. As per them, this is partly attributed to more people moving from the lower to higher income groups.

Now, how is this shift moving the economy?

A Shift in Lifestyle and Consumption

While the USA and China have long enjoyed the status of superpowers for luxury growth, India is rapidly catching up, transforming itself into a premium product haven.

The newfound economic security has led to a surge in discretionary spending, where people are no longer bound by the essentials but are free to indulge in luxury and leisure.

This means Indians are buying more premium products. And this is evident in the average selling price (ASP) of several categories, including televisions, refrigerators, laptops, smartphones and shoes, which has shot up in the past year.

Credit consumption is also one of the key drivers of this lifestyle change. With increasing credit card usage and spending exponentially, there's a clear trend towards more ambitious and luxurious living standards.

The Luxury Market Boom

As India strides forward, its market trends are undergoing a shift.

Companies that cater to the premium segments like Nestle India and Metro Shoes, among many others, are witnessing a growth.

These companies aren't just selling products; they're selling aspirations. They're riding the wave of premiumisation, where quality, not quantity, rules the market.

The appetite for premium products is evident across various categories. From appliances to fashion, the average selling price is climbing, signalling a shift in consumer preferences towards premium quality.

Investing in the Era of Luxury

For investors and market participants, this shift presents an opportunity. The key is to focus on luxury stocks, which represent companies with a legacy of premium offerings and strong brand value. These stocks with good growth are not just investments; they're more resilient in times of economic downturns.

When we say luxury stocks, think of strong brands and timeless products.

Take the example of the Indian jewellery maker Titan, which is India's largest branded jewellery maker and the fifth largest integrated own-brand watch manufacturer.

The company took over the premium jewellery segment by storm once it forayed into the business in 1990. It then differentiated itself from the competition by new product offerings at regular intervals.

Also, back in the nineties, there were no regulations about jewellery hallmarking, and jewellers were often suspected of cheating people by selling low-quality gold. Titan was again early to recognise the opportunity and it launched the Karatmeter, which checks the purity of gold using X-rays.

Titan’s stability surprises many, primarily because affluent individuals tend to maintain their buying habits even during economic downturns. This aspect provides resilience to Titan’s luxurious products (and the company’s stock price!).

So, as India makes its mark on the global luxury stage, the time is ripe for investors and traders to capitalize on this potential opportunity.

In summary, premiumization is a trend that has remained relatively under the radar, presenting numerous untapped investment and trading opportunities. Now, in an era of growing affluence, these opportunities are becoming increasingly attractive.

Which luxury product companies and luxury stocks are you keeping an eye on? Let us know in the comments section below.

See you with another interesting market story next week.

Until then - Happy learning!

Sources: Kotak Securities, Economic Times, Company Presentation

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.