According to a report published on January 12 by Goldman Sachs Group Inc., the number of “affluent” people in India is expected to reach 100 million within the next three years. According to this, the nation’s luxury goods companies will do better than their more general competitors.
Rich Indians’ purchasing power has increased over the last ten years due to strong economic growth, stable monetary policy, and rapid credit expansion, according to the report “Rise of ‘Affluent India’.” It also states that compared to 24 million in 2015, 60 million people, or 4.1% of the population, now earn over $10,000 annually. Granted, this constitutes a minor portion of the total populace.
Who consists of ‘Affluent India’?
According to Goldman Sachs, ‘Affluent India’ refers to the top 4 per cent of India’s working-age population whose annual per capita income exceeds $10,000. In comparison, the average per capita income of India is roughly $2,100. Taking into account the 1.42 billion people in the country, the ‘Affluent India’ group, which currently consists of about 44 million working-age individuals, is expected to grow to approximately 60 million.
This expanding group, which consists of 12–14 million households and about 60 million consumers, demonstrates how widely discretionary goods and services are used in India. The report highlighted some noteworthy statistics, such as the approximately 40 million air travellers that occur each year, the roughly 30 million monthly users that use online food aggregators, the roughly 30 million broadband connections, and the approximately 26 million international travellers that leave India annually.
Robust Wealth Impact as a Factor
The report points out that several factors contribute to the increase in wealth. Due to a rise in retail participation, India’s market capitalization has increased by more than 80% in the last three years. The price of gold also increased significantly, by 65 per cent, between 2020 and 2023. As a result, Indian holdings of gold and stocks have increased in value from $1.8 trillion to $2.7 trillion. Real estate values rose by almost thirty per cent between FY19 and FY23, compared to a thirteen per cent increase between FY15 and FY19.
The report went on to say that a steady rise in top-end consumption is anticipated as the ‘Affluent India’ segment grows, with the main winners being categories like entertainment, jewellery, dining out, healthcare, and luxury brands in a variety of industries.
Regarding equity, the report highlighted a distinct inclination towards brands and network initiatives like Apollo, Devyani, Eicher, MakeMyTrip, Phoenix, Sapphire, Titan, and Zomato.
Over the past year, the FY24 consensus revenue estimates for the stocks on Goldman Sachs’ ‘Affluent India list have increased by 7%, while those on the broad-based consumption list have decreased by 3%.
India’s 2020 ascent to the rank of third-largest economy
According to IMF predictions, India’s economy, which is currently the fifth largest in the world, is expected to rise to the third rank by 2027. According to Goldman, this growth is attributable to the middle class’s rising purchasing power, which is especially advantageous for businesses that sell luxury brands in jewellery, out-of-home food, healthcare, and leisure.
According to Goldman’s report, India’s wealth has increased over the last three years due to a significant rise in the value of both financial and material assets. Over the past five years, there has been a notable shift in household investing towards equities through mutual funds or direct stocks, even though traditional assets like gold and property still hold significance.
What Drives the Profits?
The three primary asset classes that are witnessing significant value growth between FY19 and FY23 are property, stocks, and gold. The biggest increases have been in gold and equities, with real estate prices rising faster over the past three to four years.
Between FY20 and FY23, there were roughly 114 million “demat accounts,” up from about 41 million in FY20. Furthermore, household savings into shares have increased dramatically since FY17 and have remained steady at a high level between FY17 and FY23, suggesting continued increased participation in the equity markets despite robust returns.
Consumers can own equity through mutual funds and direct retail shareholding, both of which have grown recently. The total ownership of BSE 200 by direct retail investors has increased from 8.5 per cent in Dec-19 to 9.8 per cent in Sep-23, while domestic mutual funds’ ownership has risen from 8.1 per cent in Dec-19 to 9.2 per cent in Sep-23.
Furthermore, the World Gold Council estimates that 25,000 tons of gold are owned by Indian households, accounting for 10–11 per cent of the world’s physical gold stock. From an average of ₹39,900/10gm in January 2020 to an average of ₹62,200/10gm in December 2023, the price of gold increased by approximately 65 per cent. From 2019 to 2023, the value of India’s household gold stock increased from $1.1 trillion to $1.8 trillion, making a substantial contribution to the country’s growing wealth effect.
The Disparity in Spending Power Continues
Notably, though, there is still a difference in the purchasing power of the middle class and high earners in India even with the country’s overall economic growth. Only 30 million Indians can afford a car, even though over 960 million debit cards and 93 million post-paid cell phone connections have been issued, despite the country’s GDP per capita being less than $3,000 annually, the report states.
This suggests that although some industries are experiencing growth, issues with access to basic amenities and income inequality persist in the developing Indian economy.