After CLSA, Goldman eyes 'affluent India' play and identifies key themes

Identifies key themes like leisure, jewellery, out-of-home food, healthcare and premium brands as growth areas

Goldman Sachs is bullish on companies that are expected to benefit from the growth in affluent Indians.

In a note, the US-based brokerage has identified key themes such as leisure, jewellery, out-of-home food, healthcare and premium brands as the growth areas.

Earlier this month, CLSA issued a note, which said companies with exposure to the urban wealthy will continue to witness strong growth this year.

Goldman has said growth in India’s wealthy is happening at a much faster pace than the overall population growth.

“Only about 4 per cent of India’s working age population has a per capita income of over $10,000, projecting to 60 million consumers.

Corroborating data across tax filings, bank deposits, credit cards and broadband connections, we estimate that this consumer cohort has grown at a compound annual growth rate (CAGR) of over 12 per cent in 2019-23, compared to 1 per cent for India’s population. If the current trajectory continues, we expect ‘Affluent India’ will grow to Rs 100 million consumers by 2027,” said Goldman Sachs in a note.

“With double digit CAGR in the ‘Affluent India’ cohort, we expect mid-teens growth in these categories over the medium term. This ‘higher for longer’ growth will imply sustenance of rich valuations. While there are many stocks that are exposed to these segments, we prefer companies that also have a competitive moat. Our top ideas are Titan, Apollo, Phoenix, Makemytrip, Zomato, Devyani, Sapphire and Eicher. They derive their moat from firstly, strong brand (Titan and Eicher), secondly, entry barriers from high cost/gestation of creating new business (Apollo and Phoenix), and thirdly network effect (Zomato),” the report added.

Some stocks identified to benefit from the urban wealthy theme by CLSA were luxury (Titan jewellery sales), convenience (Zomato) and leisure (Sula Vineyards).

“We expect this trend to continue into 2024 and beyond, aided by record corporate profitability, leading to higher incomes for business owners and corporate managers, for whom the impact of inflation is not as significant. We see an increasing number of companies (Aditya Birla Fashion & Retail, Britannia, ITC, Asian Paints and Nestle) expanding to cater to the urban wealthy and expect this trend to accelerate,” CLSA has said in a note.

Over the past one year, Goldman Sachs’ list of stocks tied to ‘affluent India’ saw a 7 per cent upgrade in the FY24 consensus revenue estimates versus a three per cent downgrade for the  broad-based consumption names.

“Not only do these benefit from the rise of ‘affluent India’, but we also see these as high quality businesses with strong competitive advantages, proven track record of past performance and market leadership within their segments. This gives us greater confidence that they will be able to hold their competitive position within these high-growth categories,” said Goldman Sachs on some companies it sees as the biggest beneficiaries. Some key risks to this thesis are rising competitive intensity and sharp correction in asset prices.

“The wealth effect from the sharp increase in the stock market and gold can reverse if there is a substantial correction in asset prices. This can impact the positive sentiment and affluent consumers could also slow down the rate of consumption growth,” added the note by Goldman Sachs.

It expects the high-growth categories, which address the top-end of the income pyramid in India, to see competition from new entrants, including international brands.