‘Affluent India’ population to grow to 100 million by 2027: report

February 5, 2024

The Indian tiger roars

The rapidly growing cohort of ‘affluent’ consumers in India is a tale of numbers for the world’s most populous – and arguably, fastest-growing – country.

Only around 4 percent of India’s working-age population has a per capita income of more than $10,000, projecting to an estimated 60 million consumers, per a new report titled “The Rise of Affluent India” from Goldman Sachs.

Corroborating data across tax filings, bank deposits, credit cards and broadband connections, Goldman Sachs India estimates that this consumer cohort has grown at a 2019-23 compound annual growth rate (CAGR) of more than 12 percent, compared to an estimated 1 percent.

CAGR of India’s population

If the current trajectory continues, the bank expects ‘Affluent India’ will grow to an estimated 100 million consumers by 2027.

Strong wealth effect kicking in: India’s market cap has increased more than 80 percent over the past three years with rising retail participation.

Gold price also rose 65 percent over 2020-23. As a result, the total value of Indian holdings of equities and gold has increased from $1.8 trillion to $2.7 trillion.

Property prices rose an estimated 30 percent over fiscal years 2019-23, compared to an increase of around 13 percent over fiscal years 2015-19.

‘Higher for longer’ growth for top-end consumption. Goldman Sachs prefers businesses with a moat

The largest beneficiary of rising ‘Affluent India’ are categories such as leisure, jewelry, out-of-home food and healthcare, and premium brands within all categories, per the report.

With double-digit CAGR in the consumers 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, Goldman Sachs prefers Indian companies that also have a competitive moat. The bank’s top ideas are Titan, Apollo, Phoenix, Makemytrip, Zomato, Devyani, Sapphire and Eicher.

These companies derive their moat from 1) strong brand (e.g. Titan, Eicher), 2) entry barriers from high cost/gestation of creating new business (e.g. Apollo, Phoenix), and 3) network effect (e.g. Zomato).

‘Affluent India’ outperforming broad-based consumption, seeing consensus upgrades: In the past three years, companies which address top-end consumption have grown faster compared to those that address broad based consumption.

In the past 12 months, Goldman Sachs India’s ‘Affluent India’ list of stocks has seen 7 percent upgrade in fiscal year 2024 consensus revenue estimates, versus 3 percent downgrade for the broad-based consumption names.

Key risks include rising competitive intensity and a sharp correction in asset prices that impairs the wealth effect.

‘Affluent India’ comprises around 60 million consumers, and is growing by double-digits

The top 4 percent of the working age population in India has a per capita income greater than an estimated $10,000 per year, compared to India’s average per capita income of around $2,100, per the report.

Goldman Sachs India refers to this top-income-consumer cohort as ‘Affluent India.’

‘Affluent India’ comprises an estimated 44 million of the working-age population in 2023, which can be projected to 60 million of the total population – based on an estimated 1.07 billion working-age population and an estimated 1.42 billion total population).

This number of consumers (60 million) and households (12-14 million) also corroborate with the household penetration or number of consumers using various discretionary products and services in India, per the bank.

For example, there are around 40 million consumers who travel by air in India every year, nearly 30 million monthly transacting users for online food aggregators, an estimated 30 million broadband connections and about 26 million international travelers from India.

Affluent India’s population is growing by double-digits

The number of people in ‘Affluent India’ has been growing by a double-digit CAGR over fiscal years 2019-23, compared to the overall population CAGR in India of an estimated 1 percent.

Goldman Sachs looked at various data points which corroborate the disproportionate growth of ‘Affluent India.’

Assuming the growth rate at 13 percent CAGR of the past four years sustains over the next four years as well, Goldman Sachs expect Affluent India’s population to rise from around 60 million in 2023 to 100 million in 2027.

Income segmentation: The total number of people with an income over $10,000 in the working-age population of India has grown at a CAGR of 12.6 percent over fiscal years 2019-23, as per Euromonitor.

This compares with the overall working age population CAGR in India of 1.4 percent over fiscal years 2019-23.

Income tax filing data in India: The total number of individuals filing income tax returns disclosing income of more than 1 million rupees ($12,000) has grown at a CAGR of around 19 percent over assessment 2017-22, compared to the overall growth of income tax filings which has grown at a CAGR of 8 percent in the same period.

Bank term deposits: The number of individual term deposits in banks above 1.5 million rupees ($18,500) has grown at a CAGR of 45 percent over fiscal years 2019-23, while the number of term deposits below the 1.5 million rupees has grown at a CAGR of 3 percent over the same period.

Credit card numbers: The number of credit cards in India has grown at a CAGR of 16 percent over fiscal years 2019-23, compared to the number of debit cards which grew at a CAGR of an estimated 1 percent in the same period. There were around 85 million credit cards in India in fiscal 2023, compared to an estimated 960 million debit cards.

Wealth effect has been very strong in the past few years

There has been a significant increase in the value of financial and physical assets in India in the past three years which is driving an increasing wealth effect in ‘Affluent India,’ per the report.

The three key asset classes that have seen a large increase in value over fiscal years 2019-23 have been equities, gold and property.

The increase has been the largest for equities and gold, while property prices have seen a higher rate of appreciation in the past three to four years.

Equities: Rising value of holdings and increasing participation in the market

The market cap of the Indian stock market has risen by 80 percent from Jan. 1, 2020 – just before the COVID disruption led market fall – to Jan. 1, 2024.

In the same period Goldman Sachs has also seen the participation of retail investors rising in the Indian equity market.

The number of ‘demat accounts’ – electronic accounts to trade shares in the stock market – has increased from around 41 million in fiscal year 2020 to 114 million in fiscal 2023.

Also, the net flow of household savings into shares has seen a large increase since fiscal 2017 and has been consistently high over fiscal years 2017-23, which could imply continued rising participation in the equity markets, in a period of strong market returns.

The ownership of equities by consumers is held through direct retail shareholding and through mutual funds. Both of these have seen an increase in the past few years.

The total ownership of BSE 200 by direct retail investors has increased from 8.5 percent in December 2019 to 9.8 percent in September 2023, while the ownership of domestic mutual funds has increased from 8.1 percent in December 2019 to 9.2 percent in September 2023, per the report.

Indian households own around 10 percent of global physical gold, which has appreciated sharply over fiscal years 2020-23

Indian households hold around 25,000 tons of gold representing 10-11 percent of the world’s physical gold stock, as per the World Gold Council.

The price of gold has increased from an average of 39,900 rupees per 10 grams in January 2020 to an average of 62,200 rupees per 10 grams in December 2023, an estimated 65 percent increase.

The value of the total stock of household gold in India has increased from $1.1 trillion to $1.8 trillion over 2019 to 2023.

This sharp increase would be a key component of the rising wealth effect on ‘Affluent India.’

While a significant amount of gold is held as jewelry in households, it is still seen as a store of value and this contributes to the wealth effect.

Property prices have seen a change in trajectory

While property prices have not risen as sharply as gold and equities, there has clearly been a change in the pace of increase in property prices in India in the past few years, per Goldman Sachs.

The average property prices in India have risen 30 percent over fiscal years 2019-23, compared to a much slower increase of an estimated 13 percent over fiscal years 2015-19, according to Propequity data.

Top-end consumption growing much faster than broad based consumption

In the past three years Goldman Sachs seen a large divergence in growth rates of consumer companies and categories in India.

One of the key factors driving this is that companies which address consumption from the top end of India’s income pyramid have grown much faster compared to companies in the same category which address broad based consumption in India.

Premium players within the same category growing faster: In most industries, Goldman Sachs have seen companies which address relatively more affluent consumers have been growing faster than companies which address broad-based or mass-consumption.

These trends are visible in FMCG (Nestle India growing faster than Hindustan Unilever), footwear (Metro growing faster than Bata), fashion (Trent growing faster than V-Mart), passenger vehicles (SUVs growing faster than entry level cars) and two-wheelers (Eicher growing faster than the industry).

Within companies, premium segments have grown faster: Within the same company, Goldman Sachs has seen a sharp divergence in the premium portfolio and the mass portfolio. HUL’s premium portfolio has grown 2x that of the company’s overall revenue growth.

For United Spirits, the ‘Prestige & above’ segment brands have grown much faster than ‘popular’ segment brands. These trends are in concurrence with the data showing the much faster growth of Affluent India, which is likely to continue going forward.

Companies exclusively addressing premium consumers growing rapidly: Companies in categories which largely address top income consumption such as jewelry (Titan), travel (Makemytrip, Indian Hotels), premium retail (Phoenix Mills), premium online beauty (Nykaa) and premium healthcare (Apollo Hospitals) have seen strong growth.

Credit card spending has increased 2.5x since fiscal year 2019: Credit cards tend to be largely used by upper income consumers. There are slightly more than 90 million credit cards in India, having grown from slightly below 50 million in fiscal year 2019.

Many consumers have more than one credit card. Thus, most credit cards are likely to be owned by our definition of ‘Affluent India,’ which compares to an estimated 60 million consumers.

The total spend on credit cards has increased 2.5x if Goldman Sachs takes the trailing 12 months versus fiscal year 2019.

Top-end consumption has continued to outperform even post the removal of COVID restrictions

The initial hypothesis was that the divergence in consumption for companies that address top-end consumption compared to those that address broad-based consumption was due to the impact of COVID restrictions.

COVID restrictions had a greater impact on low-income jobs such as those in the service industries including hotels and restaurants.

However, COVID restrictions were fully lifted in early 2022, and yet the divergence in growth rates has continued till the end of 2023.

“We are now 24 months post the lifting of all restrictions, and most services shut down during COVID have fully opened up,” the report said. “The divergence was not just caused by COVID restrictions, but by fundamentally faster growth of ‘Affluent India’, due to the many factors we discussed.”

Leisure, jewelry, out-of-home food, healthcare likely to be the key beneficiaries

The rapid growth of ‘Affluent India’ is likely to have a disproportionate impact on categories which derive a large part of their consumption from the top 50-60 million consumers in India.

Also, as the size of Affluent India expands to an estimated 100 million over the next four years, more categories could become net beneficiaries.

To identify which categories see the largest increase in consumption as the number of consumers in Affluent India rises rapidly, Goldman Sachs looked at three different approaches.

Comparison of consumption in India with other countries at around $10,000 per capita income: The bank compared the category-wise per capita consumption of India with other large economies such as China and Brazil, which have an average per capita income of around $10,000.

The largest gap in per capita consumption for China and Brazil with the India average is in categories such as leisure, hotels, recreation, out-of-home food and durables, followed by medical services.

In China/Brazil, the per capita consumption in leisure, hotels, recreation and out-of-home food is about 18-20x that of India, compared to overall consumption which is 2-3x that of India.

As the population of ‘Affluent India’ grows at a double-digit CAGR, Goldman Sachs expects high growth in these categories in India.

Comparison of India’s average consumption with the top 10 percent of urban India: Goldman Sachs compared the category-wise per capita expenditure of the top 10 percent of urban India with the overall India average consumption expenditure.

The top 10 percent of urban India represents around 3.5 percent of the population, very similar to the population proportion of ‘Affluent India’ as per the bank’s calculations.

The largest gap in per capita consumption for the top 10 percent of urban India compared to the average per capita consumption in India is in durable goods, healthcare services, jewelry and out-of-home food.

In these categories, the per capita consumption in the top 10 percent of urban India was 8-10x that of the average of India.

As the population of ‘Affluent India’ grows at a double-digit CAGR, Goldman Sachs expects high growth in these categories in India.

Current consumer base of various premium brands/categories: The bank looks at brands and categories which largely address the top 15-20 million households, or the top 60 million consumers in India.

The bottom-up data in some of these categories also indicates that it currently addresses Affluent India, to a large extent.

For example, there are around 40 million flight passengers in India every year, the total monthly active users for online food delivery is 25-30 million, Titan’s jewelry business has an annual transacting user base of less than 3 million consumers in India and Nykaa’s online beauty business has 10 million annual transacting consumers.

Travel/leisure, out-of-home food (online food delivery/QSR) and jewelry largely address Affluent India and thus are likely to benefit as this segment grows rapidly.

Also, premium brands within categories largely address Affluent India. These would be premium two-wheelers/cars, premium fashion retail, premium personal care and premium healthcare.

Investment ideas exposed to the rise of ‘Affluent India’ – higher growth for longer

Goldman Sachs looks at investment ideas based on the analysis in the above section, which either play on categories such as jewelry, healthcare, travel/leisure and out-of-home food or have a major focus on premium brands within any category.

These categories are likely to see high-growth rates sustain for a longer period, given the double-digit CAGR of the ‘Affluent India’ consumer cohort.

Consensus estimates for ‘Affluent India’-exposed stocks have seen consistent upgrades, while that of broad-based consumption has seen downgrades

Goldman Sachs’ analysis also shows that the Bloomberg consensus revenue estimate of this list of stocks has seen consistent upgrades in the past two years, as they have continued to positively surprise the market on growth expectations.

On the other hand, the list of consumer stocks which address broad-based consumption (home and personal care, mass two-wheelers, paints, mass footwear, mass fashion) has seen downgrades in consensus revenue estimates in the same period, per the report.

“Thus, the positive surprise delivered by the ‘Affluent India’ list has not been driven by a broad-based tailwind in overall consumption growth in India,” the report stated. “Rather, it has grown in an environment where broad-based

consumption has been muted.”

Please click or tap here to download Goldman Sachs’ report, “The Rise of ‘Affluent India’”

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‘Affluent India’ population to grow to 100 million by 2027: report

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