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The more you spend, the more you earn

By Nilesh Shah
January 31, 2006 13:57 IST
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There is a great investment opportunity opening up in India. We term this investment area as the 'lifestyle segment.'

Broadly, we define this segment of companies as those that are poised to benefit from a change in the consumption pattern or lifestyle of the Indian population. Within this segment Indian businesses are poised to go through a radical change as Indian consumers wake up to new lifestyle aspirations.

In line with these changes, social forces and business factors too are changing. These lifestyle changes are due to a variety of reasons. Let us understand the reasons for this change and how they can lead to wealth creation.

The demographics of India are undergoing a structural change. India is one of the youngest nations in the world; with two-thirds of its population under the age of 35 years. Urban India is growing faster than rural India. An increasing number of young people from rural India are moving to urban cities for higher education, employment, etc.

This growth in urban Indian population, results in a higher number of employed city residents who earn more and thus have a larger spending power, which is only further boosted by easily available credit. This younger section of the population has greater aspirations than their predecessors, and this results in a greater belief in lifestyle products and services.

Along with being one of the youngest nations, we are also the second fastest growing nation in the world. Post-1947, the Indian economy's growth momentum has surged and given rise to a growing income levels. This has created a large middle class and growth in the number of urban areas in the country.

The rising income of the middle class is also a result of the emergence of sectors like IT services, retailing, etc, which have been hiring a growing number of young people. These youngsters are open to adopting a lifestyle more refined than their forefathers.

Accompanied by the growth in employment of the young, the revolution in the financial sector had made credit easily available, which provides them with the fuel to drive the engine of their desired lifestyle. These factors forge India's growth towards consumerism and lifestyle changes.

Higher income levels of Indian youth, along with their exposure to western culture, intensifies their aspiration to achieve a higher standard of living, like their counterparts in the western world. Alongside this, the Indian markets have been seeing an influx of foreign and domestic brands, making the consumer more conscious of what he uses.

Banking at the fingertips has also redefined the availability of money to many. Banks have not only introduced revolutionary measures like the debit card, etc, but have also made the availability of credit very easy and tempting to consumers. There is a growing EMI (equated monthly instalments) culture today. Many retailers offer EMI facilities to help you purchase goods.

Thus by promising a part of one's future earnings, one can buy goods today. Consumers have taken to this facility very well. They don't have to pay lump sum amounts at one go and can spread payments over a number of months. These gradual changes in an Indian's lifestyle have a much bigger impact than meets the eye.

This has created a demand-pull for lifestyle segment products due to higher disposable incomes, and leads to higher sales and higher corporate profits. This forces companies to expand and grow production to fulfill the demand, in turn making them hire more people.

The cycle continues forward to add to the disposable income of people. Thus changing lifestyle leads to a virtuous cycle. Along with these lifestyle changes we can see many lucrative investment opportunities emerge.

Not only are Indian retailers going the organised/modern retail way, the demand for 'more' has also forced some international majors to look at India as an important business destination.

We now have the likes of the retail giant Wal-Mart wanting to enter the retailing business in India. Sectors like media and entertainment, automobiles, telecom, organised retailing, travel and tourism, banking, finance and insurance, etc are also going to benefit from this changing lifestyle.

Companies like Citibank, Vodafone, eBay, et cetera have grown exponentially abroad, capitalising on the lifestyle of our foreign counterparts. The similar trend is likely to unfold amongst the Indian lifestyle sector companies (as we broadly call it).

The potential growth is quite large for such companies and makes for a compelling investment avenue that one shouldn't miss out on.

Imagine! We have now reached a scenario where, the more you spend the more you earn! Happy spending and investing!

The author is president, Kotak Mahindra Asset Management Co. Ltd.
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