India growth story strong, but where are consumer stocks?
BSE’S CONSUMER DISCRETIONARY GOODS & SERVICES INDEX TRADES AT 22.82 TIMES ONEYEAR FORWARD PRICE TO EARNINGS, WHILE THE SENSEX TRADES 17.24 TIMES
India’s consumption story is one of the most talked about in the world but in the consumer discretionary space, barring a few exceptions such as automobile companies, there aren’t enough publicly traded companies for investors to ride the consumption boom.
With foreign brands and privately held firms among companies dominating the market, it is hard for local investors to find good bets. “There are not enough companies to well represent India’s growing consumption story in the listed space. I think the space is still evolving, and will take a lot of time to reach the likes of developed countries,” said Sanjeev Prasad, senior executive director and co-head of Kotak Institutional Equities.
India’s nominal year-on-year consumption expenditure growth of 12% is more than double the anticipated global rate of 5% and will make India the thirdlargest consumer market by 2025, Boston Consulting Group said in a report on March 21.
“India is still a growth story—a big growth story,” the report said. BCG expects consumption expenditure in India to rise by a factor of three to $4 trillion by 2025, assuming a conservative GDP increase of 6-7% a year.
Citing the example of US restaurant chains such as Mcdonalds and Chipotle, Prasad said there are hardly any listed restaurants in India. “We are still in the early stages of economic development. Talking of per capita spending, it will be a while until indigenous companies become big enough and enter the listed space in the consumer discretionary space, or rather the high-end consumption expenditure,” he said.
Currently, Specialty Restaurants Ltd and Jubilant Foodworks Ltd are the only publicly traded restaurant chains in India.
“It will take a while until it looks viable for firms in this area to expand to that size, and to manage a huge scale,” said Prasad.
According to Anand Shah, chief investment officer of BNP Paribas Mutual Fund, there are few investment options at the high-end consumption expenditure, as the key market leaders are not always listed in India, and American, Chinese and Korean companies dominate or have a significant slice of the market.
India’s smartphone market has been growing steadily. Shipments of smartphones in India have risen more than nine-fold to 109 million units in 2016, from 12 million units in 2012, data from International Data Corporation’s (IDC) showed. However, highend phone makers such as Apple, Samsung, Sony, have no listed entity in India. Micromax, the one of the few local brands that is widely used, is privately held.
There are some options such as Redington (India) Ltd, a key distributor of major smartphone brands in India. However, such options are few in number.
In the air-conditioning space, market leaders are foreign companies such LG sand Samsung, even though the listed space does have companies such as Voltas Ltd, and Blue Star Ltd.
At the same time, all is not missing. Auto companies such as Maruti Suzuki India Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd, are listed on the bourses and compete with Hyundai, Ford and the likes.