Anupam: Hi listeners, we at Aditya Birla Sun life Mutual fund have come up with a special podcast series called MF 101 in collaboration with Bloomberg Quint. MF 101 is an informative series that will help you understand the recipe behind mutual fund investments and what’s more? It’s coming from the chefs of the mutual fund buffet table. From the very own fund managers and analysts who are the manufacturers of the funds that help you realize your investment goals.
Hi, I’m your host Anupam Gupta, B50 on twitter and in this episode, we are going to discover the recipe behind the ‘Indian consumption story’ from our guest chef Chanchal Khandelwal, Co-Fund Manager and Senior Research Analyst at Aditya Birla Sun Life Mutual Fund. Let’s start the show! Chanchal, Welcome to the show! Tell us something about yourself?
CHANCHAL: Thanks, Anupam for having me here. I joined Birla group 15 years back as a group management trainee and have been with various Birla group company for first two years of my carrier. Then I joined corporate finance and was working there till I got an opportunity to come to the equity side. I was always interested in equity side, 10 years back I joined Aditya Birla Sun Life Mutual Fund and have been with the mutual fund for the last 10 years joined as a research analyst and today I co-manage few fund with various mandate.
Anupam:Okay Chanchal let’s talk about consumption okay it’s such a huge theme. First Let’s explain what exactly is this consumption theme to our listeners.
CHANCHAL: Consumption is a very important theme for India GDP. More than 50% of India GDP is private consumption expenditure and that’s the importance of India GDP. You know we are one-sixth of world population. We are just 4% of the GDP and as per capita income improves we will try and spend more and that shows the importance of consumption in the GDP. Consumption I believe today if you look at the break up of private consumption expenditure more than 70% is non food when I speak about non-food, I talk about consumer auto, durable, healthcare, hospital, education, services and this is what will drive the consumption going forward.
Anupam:Let’s get into specific drivers right because the number of sectors that you have mentioned seem to be quite a few what are the specific drivers that you believe drive the consumption sector overall?
CHANCHAL: The key drivers of consumption is a theme in India. Firstly it would be demographic in India 70% of population is less than 30 years of age and as per capita income improves people will consume more and youth by nature will tend to consume more so that is a first major driver. The Second big driver is Urbanization. 68% of the Indian population spend stays in rural area when they come to urban area, when they see the changes in lifestyle they tend to consume more. The third big driver is the media penetration today with data becoming so free people tend to see what’s happening in the emerging market what’s happening in emerging countries what’s happening in urban India and they tend to consume more. The aspiration level of people is at an all-time high. So, that’s the three big drivers of consumption in India.
Anupam: Okay Chanchal tell us something about the lifestyle changes you know in the rural and in the urban segments.
CHANCHAL: You know changes in lifestyle is happening not just between you and me but it’s happening in the rural India. Last 5 years if you see the trend which has happened these people have got access to neat and clean toilets, the electricity penetration in India is increased, the cooking gas penetration in India has increased and the proportion of pukka houses has increased. What will all these 4 factors do - They will drive consumption of dish wash, toilet cleaners, packaged food, handwash and durables like fan, lighting, which was not there in rural India. So, those are the changes which are happening, and which will drive the change and consumption habit. If you attempt to people like you and me what are the big changes happening. We don’t want to stay with our parents you know people are moving from a joint family to a single family and when we stay in a single family you tend to consume more consume whatever you want with no one to talk to you or no one to disturb you so that’s a big change. The other big trend is that there are more women participation in the working force as that increases people tend to consume more and the lifestyle and habit of consumption changes.
Anupam:So, Chanchal let’s talk about specific categories within the overall consumption themes let’s talk about staples for example where do you think the growth is going to come from for the staples segment?
CHANCHAL: You know consumption there are 3 big ways of driving consumption. Firstly, people not consuming will start consuming. Second is people who are consuming will consume more or Third is Premiumizing. If you see staples as a category, I agree with you the penetration level of staples as a category like toothpaste or detergents as I said is 85-90% but if you look at consumption of skincare which is 75% penetration in India, we consume very less of skin cream or skin care to talk to. To give you example we have to one twenty fifth of Thailand and one tenth of China so as per capita income we tend to consume more the other way to look at it is even India is also a cluster of many states. If I just give you an example of detergents consumed in Tamil Nadu if the entire India start to use the same amount of detergents as being used in Tamil Nadu the detergent category will be 3x of what is it today. So, the frequency of consumption will drive more consumption. The second consumption drive in factor for staples would be the premiumization. The premiumization is a trend that plays across category. To give you an example of biscuits we have been consuming biscuit but today we want to eat value added biscuit, we want to eat rusk, we want to eat cream biscuit so this will drive the consumption going forward.
Anupam: Great! Let’s move on to the consumer discretionary segment where do you think the growth will come from there there?
CHANCHAL: You know as per capita income improves more than two thousand dollars we have seen that in all the emerging countries the discretionary spend tend to increase and in discretionary the penetration level is very low lowest in 20-30% and the overall space. To give you an example in a category like AC penetration level is 7-8% whereas most of the emerging market even China the category level as I said is 60-70% so the headroom for growth for this sector is huge. The second category I was talking about is fashion and lifestyle. The per capita spend as it increases people tend to spend more on fashion and lifestyle, we hardly own one and a half to two footwear. But as the per capita income improves we tend to own 7-8 footwear we tend to spend more on fashion and lifestyle we will tend to spend more on the textile industry. The other big thing where the discretionary spend will go is the home improvement. Home improvement as a category will evolve in India be it paint, styles, furniture furnishing will tend to spend more on this category will evolve in India. Last but not the least is the eating out habit you know eating out and dining out habit has hardly started in India. Today we eat out 3-4 times a month talking about Singapore 28-30 times a month they eat out so as our per capita income improves the discretionary spend will go up and will tend to consume more.
Anupam: Okay Chanchal let’s now just take a step back and look at the larger picture right so what are the broad trends for the consumption sector in India going forward?
CHANCHAL: The major trend for consumption sector is shift from unorganized to organized. When I talk about shift from unorganized to organized it doesn’t just mean the brands the unbranded will move to branded. It also means about the channels of consumption. Today we have 9 million retail outlet and organized retail is just 8%. After many years the organized detail will say from ten years from now become as 20% 20 years from now as I said it can become 30% an organization is here it will tend to stay big and that’s where the consumption habit will change. So, first is shift from unorganized to organized and shift from channel of consumption where we will more consume in the organized channel of consumption. The other big trend is natural, herbal, organic, ayurvedic. I spoke about all the four things but just to give you example toothpaste today 30% of the consumption of toothpaste is in natural as a category. Global brands are talking about naturals in each and every category of theirs. So, this trend is there to stay, and this will evolve. The third major trend is male grooming. Male grooming as a apace was not there but today this will also evolve moving forward. The fourth big trend I have already spoken about is I have already spoken is Premiumization. In most of the categories people will tend to spend people when they are happy tend to pamper themselves and this is one way of pampering themselves by buying more premium brand be it in any space. Last but not the least people will tend to consume brands with a purpose. Recently VISA brand did a delivery in CHN to the army the entire reason of delivery was also for a purpose, but they created a huge ad using the social platform showing their brand with a purpose. Your T brand trying to show that why sharing is good your detergents brand showing how dirt is good. So, people will tend to associate brands with where brands plays a role with a purpose. This is the key trend which will play outgoing forward.
Anupam: Chanchal final question of the show what kind of investor do you think should invest in consumption as a theme?
CHANCHAL: I think consumption as a theme is here to stay for longer term and someone who has bullish on India bullish on Indian demography, bullish on how India story will play out so the investor in this trend and so we invest for a longer term and in this way the sector and the theme will play out
Anupam:Fantastic! Folks that is a wrap on our show with Chanchal Khandelwal. For more such interesting know how’s continue listening to our Podcast MF 101 or simply follow the blog page of Aditya Birla Sun Life Mutual Funds, Bloomberg quint, IVM podcast or wherever you get your podcasts from. If you had any queries or some specific subjects you want us to talk about, with regards to mutual fund investments, reach out to us on our Twitter handle @abcabslmf. Thank you for listening to this podcast!
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