Premiumization in India: Unlocking investment opportunities
Consider the automotive industry: 60% of car registrations in India in FY24 have been SUVs, highlighting a preference for higher-end vehicles offering status and comfort. In the two-wheeler segment, growth is driven by demand for power bikes Similarly, metropolitan real estate markets, particularly in Mumbai, NCR, Bangalore, and Chennai show a rise in demand for luxury properties India's luxury housing market is thriving, as it recorded a 10 per cent year-on-year (Y-o-Y) growth in sales during the first quarter (Q1) of 2024.
Do you know what is common between India's automotive, FMCG, real estate, electrical goods, travel, and even alcoholic beverage industries? That is of Premiumisation. Post one year of COVID-19, a secular trend of premiumisation has been driving profitability growth across a number of industries. As disposable incomes rise, more Indian families are transitioning into higher income brackets. We also observed secular shifts in attitudes towards saving (decline in Gross Domestic Savings) and a shift in cultural attitude of having more willingness to spend. The traditional, conservating, savings-oriented consumer outlook has given way to consumers seeking better products, services and experiences. This shift is reshaping , presenting a wealth of opportunities for investors.Consider the automotive industry: 60% of car registrations in India in FY24 have been SUVs, highlighting a preference for higher-end vehicles offering status and comfort. In the two-wheeler segment, growth is driven by demand for power Similarly, metropolitan real estate markets, particularly in Mumbai, NCR, Bangalore, and Chennai show a rise in demand for India's luxury housing market is thriving, as it recorded a 10 per cent year-on-year (Y-o-Y) growth in sales during the first quarter (Q1) of 2024.
The travel industry has adapted, with sustained demand for corporate and leisure travel prioritizing superior experiences, evident in the expansion of the hospitality sector's luxury services The banking sector follows suit, with unprecedented growth in high-end programs in , driving profitability by courting high-net-worth individuals (HNI). Across industries, FY24 results show profitability growth outpacing revenue growth, driven by . For investors, this presents an opportunity to focus on poised to benefit from this transformative shift.
From Necessity to Desire: The Cultural Shift
Historically, Indian consumers have been cautious spenders, prioritizing savings and essential purchases. However, with increasing disposable incomes, there's a noticeable shift towards discretionary spending. The cultural mindset has evolved from "Can I afford this?" to "I deserve this." This change is evident in the growing number of premium product categories and services that consumers are now embracing.
- Automotive Industry: The automotive sector exemplifies this trend, with 60% of car registrations in India by the end of FY24 being SUVs. This preference indicates a move towards vehicles that offer more than just utility, highlighting a desire for status and comfort. Additionally, the two-wheeler segment has seen growth driven by power bikes, which cater to consumers seeking performance and prestige. The shift towards also signifies a deeper change in consumer priorities, where quality and brand value outweigh mere functionality.
- Real Estate Trends: In the real estate market, particularly in metropolitan areas like Mumbai, Bangalore, and NCR, there is a discernible rise in demand for high-end, luxury properties. Consumers are willing to invest in premium real estate for better living standards and potential returns. This trend is transforming the skylines of these cities, with luxury apartments and gated communities becoming the norm rather than the exception. The premium real estate boom is not just about better living spaces but also about lifestyle upgrades and status symbols.
- Corporate and Leisure Travel: The travel industry has adapted to the premiumization wave. Initially, post-pandemic "revenge travel" surged, but there is now a sustained demand for corporate and leisure travel that prioritizes superior experiences. This trend is evident in the hospitality sector, where luxury hotels and premium services are increasingly in demand. Travelers are no longer just looking for a place to stay; they seek unique experiences, top-notch amenities, and personalized services that add value to their journeys. This shift underscores the growing importance of experiential benefits in consumer choices.
- FMCG: Across both consumer staples and discretionary names, premiumisation has been a strong theme. Post the pandemic, consumer companies have reported faster growth across the premium portfolio as versus the mass segment and premiumisation has been a strong strategic focus for companies across categories like F&B, BPC, Home Care products, paints, jewellery etc.
- Electrical Goods: With rising disposable incomes, electrical consumer goods continue to see good traction in sale of premium segment and companies are expanding their range of premium products. This trend towards premiumisation can be witnessed across several consumer durables categories like cables & wires, fans, lightings, air conditioning etc.
- Banking Sector: In the banking industry, high-end wealth management business of banks has seen unprecedented growth. Both public and private sector banks are actively courting HNI account holders, reflecting a broader trend of premiumization. Burgundy Private revealed that they now advise 35 of the Forbes list of 100 richest Indians. This focus on high-value customers is driving profitability growth across the banking sector. Premium banking services offer tailored financial solutions, personalized advisory, and exclusive benefits, catering to the sophisticated needs of affluent clients. This trend highlights the banking sector's strategic shift towards value-added services to attract and retain high-net-worth individuals.
For investors, the premiumization trend opens up new avenues. Companies that cater to this growing demand for premium goods and services are poised for substantial growth. Fund managers can enhance their portfolios by focusing on high-quality companies within these burgeoning sectors.
- Automotive: Investing in companies that manufacture and sell SUVs and premium vehicles can be lucrative as consumer preferences shift towards these high-value products. Brands that innovate in terms of technology, safety, and comfort are likely to see sustained growth.
- FMCG, Consumer Goods and Healthcare: Companies producing premium household goods and providing high-quality healthcare services are likely to see increased revenues and profitability, making them attractive investment options. The emphasis on quality and innovation in these sectors can lead to strong market positions and customer loyalty.
- Hospitality and Real Estate: Investing in luxury hotels and premium real estate developers can yield significant returns as these sectors continue to benefit from the cultural shift towards premiumization. Real estate projects in prime locations and hospitality brands that offer unique, high-end experiences stand to gain the most.
India's journey towards premiumization is more than just a trend; it's a fundamental shift in consumer behaviour driven by rising incomes and changing cultural attitudes. For investors, this presents an opportunity to tap into high-growth sectors by focusing on companies that are well-positioned to benefit from this transformation.
(The author Hitesh Zaveri is Head-Listed Equity Alternatives at Axis AMC. Views are own)
Source: Stocks-Markets-Economic Times
