Apple, the world’s most valuable company, recently opened two retail stores in India. When the biggest company by revenue and market value takes a call like that, you must sit up and take note. There is a lot of thinking and strategizing that goes behind that action. Apple went to China in 2008. In those days, China was a $4.5 trillion economy in terms of GDP.
Cut to 2023, the entry into India is at a time when it is closer to the $ 4 trillion GDP mark. Over the past 15 years, Apple has opened 48 stores in China. In an interview recently, Apple CEO Tim Cook talked up the Indian market and expected Apple to make inroads. He said that the Indian market was at a “tipping point” since many people were coming into the middle class.
Meanwhile, Pret-A-Manger, a company that makes fresh sandwiches and coffee in the UK, opened its first store in India. There are many quick-service restaurant companies that have opened. However, Pret-A-Manger has no ‘Use by’ date for the food products in the store. Everything from sandwiches to other bakery items is freshly made and disposed of at the end of the day. Achieving the supply chain is a challenge. The opening of the first store in India shows the confidence of the company to manage and sell to the rising Indian consuming class.
Similarly, Reliance Industries group, the largest conglomerate in the country, is a critical driver in the retail space bringing global brands to India. The group has opened a world-class art and convention centre that brings to India Broadway theatre for the first time. These are expensive entertainment ideas. However, the opening up of such facilities means businesses think affordability in India is now higher than before.
There are opportunities for new consumer products and categories. Some consumers wish to buy those products, and some suppliers are willing to meet the standards required to service customers. You can learn more about the consumer sector by reading the conference call transcript of consumer goods companies.
Hindustan Unilever, the largest consumer company, reported quarterly performance despite weak rural demand and high commodity prices. In the latest earnings call conference, Sanjiv Mehta, CEO of Hindustan Unilever, said the company grew the topline by 16%, led by 5% volume growth across product categories. That was despite the consumer goods sector market declining in volume overall. The largest consumer company in India expects to sustain growth in the medium to long term. Low-income people are affected the most in an inflationary environment as consumer goods spending makes up for the largest share of the total monthly expenditure.
Despite commodity prices exceeding the ten-year averages, the company has maintained margins in key product categories and retains pricing power. The HUL story tells us about the resilience of the Indian consumer market for household goods.
How to benefit
Investing in the consumer sector is for the long-term. When you put your money into these companies, it would take a long time for you to enjoy the fruits. Usually, consumer companies trade at a much higher valuation than the average market. They are considered defensive stocks as they are profit-making businesses with a strong balance sheet and generate steady cashflows. They also pay high dividends. Hence, these stocks are favourites of all types of investors. Large institutional investors and high-net-worth investors have these stocks as a part of their core portfolio.
The opportunity in India’s consumer sector is just opening. It is only now that companies are relying on digital e-commerce. As more people use smartphones to buy everyday groceries or gadgets, companies selling such goods are likely to grow their business consistently.
If you are new to the world of investing, you can start by buying mutual funds that have a higher allocation to the consumer sector. There are sector-specific funds too. Index funds are a better option as they track the performance of a sectoral index and are cost-efficient.
Long-term investment in consumer sector
The opportunity in India’s consumer sector is just opening. It is only now that companies are relying on digital e-commerce. As more people use smartphones to buy everyday groceries or gadgets, companies selling such goods are likely to grow their business consistently
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)