'Nifty Consumption Index outperformed broader market over several cycles'

The Nifty India Consumption Index has consistently outperformed the broader market, showcasing its strength amid fluctuating economic conditions, shows a new study by Bajaj Finserv Asset Management Company.

 Recent data highlights that the index generated an impressive 5.3% absolute alpha over the past year, indicating  short-term growth. Over a longer horizon, the index maintained a compounded annualized alpha of 2.8% over the past three years and 0.4% over the last decade.

"This data suggests that consumption-related sectors are on the rise in the country and are poised for a potential boom in the long term," said Bajaj Finserv in a note.

The Index delivered returns of 45.5% for one year, 20.5% for three years, and 14.5% for ten years as of August 2024. 

In comparison, the Nifty 500 Index provided returns of 40.2%, 17.7%, and 14.1% for the same one-year, three-year, and ten-year periods, respectively. Additionally, the study indicated that the Nifty India Consumption TRI outperformed the BSE 500 TRI seven times in the last 11 calendar years.

 India's per capita income is projected to exceed $3,000 by 20251, fuelling consumption growth. By 2030, the middle class is expected to comprise 40% of the population, significantly driving discretionary spending.

#Performance less than 1 year is absolute and more than 1 year is compounded annualized.

"Moreover, the Nifty India Consumption Index showed greater resilience compared to the broader market, with less drawdown during the Global Financial Crisis and the COVID-19 pandemic. During the Global Financial Crisis in 2009, the Nifty 500 Index dropped by 64.26%, while the Nifty India Consumption Index experienced a drawdown of 53.11%. Similarly, during the COVID wave of 2020, the Nifty 500 Index fell by 38.30%, while the Nifty India Consumption Index fell by 32.37%5," said the note. 

Indian consumers are evolving due to rising per capita income, with more households moving into upper-middle and high-income groups. Increased disposable income is boosting purchasing power and improving living standards, driving higher consumption. 

What’s driving consumption in India

According to the study by Bajaj Finserv AMC, India’s per-capita income is expected to surpass $3,000 by 2025, boosting consumer purchasing power. A burgeoning middle class, which is set to grow to nearly 40% by 20306, would drive a consumption boom.

The study also shows that India’s rural FMCG market is poised for robust growth and is estimated to reach $100 billion by 2025. Meanwhile, the Indian food services market is projected to reach a valuation of $125.06 billion by 2029, reflecting increasing consumer demand. The organic food sector, too, is on the rise and is expected to grow to $2.6 billion by 20257 as health-consciousness spreads among consumers. Additionally, the market penetration of packaged foods, beverages, and personal care products, is expected to reach 85% by 20308.

Further, the health and wellness sectors are set to expand at a CAGR of 15-20% over the next five years, driven by a growing emphasis on healthier lifestyles and holistic living. The contribution of quick commerce platforms to the online grocery market is anticipated to surge from 10% to around 45% in the coming years9, reflecting the desire of urban consumers to opt for convenience amid rapid urbanization.

The shift is also visible in consumer appliances segment. "India stands as the second-largest smartphone market globally, with projections indicating it could expand to $90 billion by 203210, driven by adoption of technology in rural areas. Additionally, India leads the world in the two-wheeler market, fuelled largely by demand from rural and semi-urban regions. This highlights the evolving landscape of consumer preferences in the country. Similarly, there is an increased demand in the premium consumer goods segment, which is projected to grow at a CAGR of 10-12%,11 fueled by an increasing number of affluent consumers," said the note.

The megatrends in consumption reveal that the e-commerce customer base is expected to grow by 2.7 times by FY2512. This growth reflects in rising consumerism and urbanization. An example is the social behavior of consumers which is changing radically, with eating out expenses projected to rise 2.4 times by FY25.