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Goldman Sachs predicts 100 million Indians will earn $10,000 by 2027

by SuperiorInvest

The increase in wealth has been seen thanks to higher retail participation, increased investments in Indian stock markets and purchases of gold and property.

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Rising disposable incomes will boost India’s consumption, further boosting the country’s consumer sector, which is quickly becoming a key driver of economic growth.

India, which has relied heavily on business-to-business services and manufacturing to drive growth, is on track to become a more consumer-focused economy, said Abhishek Malhotra, a partner in McKinsey & Company’s Mumbai office. .

His comments came in the wake of a Goldman Sachs report last week that predicted that around 100 million people in India will become “rich” (earn an annual income of more than $10,000) by 2027.

There is a huge desire to spend on travel, jewelry, eating out, among other things, and discretionary spending in the country is on the rise, Malhotra told CNBC in a Zoom interview.

Currently, 60 million people in the world’s fifth-largest economy earn more than $10,000 (about 4% of India’s working-age population), according to the report released last week. The figure was only 24 million in 2015.

“When you have a lower income, most of your money goes to food and housing… Now that those expenses are taken care of, there is discretionary spending left over,” Malhotra said, adding that consumer sectors such as travel, jewelry and services will benefit. We will see significant growth in the next two decades.

The country’s consumer market will become the third largest in the world by 2027, as the number of middle- to high-income households increases.

About 33% of India’s 1.4 billion people are estimated to be between 20 and 33 years old, according to data from BMI, which is prompting global companies to set up and expand operations in the country.

Pedestrians walk past a Tata Starbucks coffee shop in Mumbai, India, Saturday, Nov. 5, 2016.

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For example, Tata Starbucks – a joint venture between Tata Consumer Products and Starbucks Corporation – announced in January that it will have 1,000 stores in India by 2028.

The coffee chain currently operates around 400 stores in 54 cities in India. Other international chains such as Tim Hortons and Costa Coffee have reportedly made efforts to gain a foothold in the Indian market.

The increase in income is also reflected in higher domestic capital inflows into Indian stocks, and the country’s market capitalization has increased more than 80% in the last three years; India overtook Hong Kong in December to become the world’s seventh-largest stock market.

In addition to the growth in investments, Goldman foresees a sharp increase in gold and property purchases..

Property prices in the South Asian nation have soared more than 30% between fiscal year 2019 and 2023, compared to just a 13% increase between fiscal year 2015 and 2019, due to increased demand for living place.

Higher incomes have also led to credit card spending more than doubling in the past year compared to 2019, Goldman said.

The report showed that around 90 million credit cards are used in India, and some of the people who earn more than $10,000 have more than one card. In 2019 there were only 50 million credit cards.

“There is a focus towards plastic currency and digitization of payments in India… And the young population is the key driver of credit card growth,” said Kranthi Bathini, equity strategist at WealthMills Securities.

“Young people trust India’s growth story, so that’s where this participation is coming from,” Bathini told CNBC by phone.

Promising plays

Shares of Indian travel companies such as MakeMytrip and InterGlobe Aviation (IndiGo) have seen gains since the beginning of the year, making them Goldman’s top picks in the travel sector.

Travel spending in the world’s most populous country is expected to be the fourth highest globally by 2030, largely due to the growth of middle-income households.

To meet growing travel demand, Indian airlines placed record aircraft orders with Akasa Air on Thursday, ordering 150 Boeing 737 MAX aircraft.

Indiana is projected to take 5 billion leisure trips by 2030, of which 99% will be domestic.

The Indian Hotels Company, which owns 263 properties in the country, will benefit from increased domestic travel, Goldman said.

Jewelry companies like Titan and Kalyan are also among Goldman’s top picks, with both stocks up 2% and 9%, respectively, so far this year.

Goldman Sachs said food operations, such as food delivery company Zomato, will benefit from the growth of India’s consumer sector.

Debarchan Chatterjee | NurPhoto | fake images

In the food delivery space, Goldman prefers names like Zomato, Devyani, Sapphire and Phoenix Mills.

“Not only do they benefit from the emergence of ‘Prosperous India’, but we also view them as high-quality companies with strong competitive advantages, proven track records of past performance and market leadership within their segments,” he said.

“This gives us greater confidence that they will be able to maintain their competitive position within these high-growth categories.”

—CNBC’s Naman Tandon contributed to this report.

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