Investment climate still good for Pepsi, Coke and HUL
If a Unilever agrees to spend $5.4 billion on buying back its shares, and both Coca Cola and PespsiCo are willing to invest $5-6 billion apiece—the last two, over a period of 6-7 years though—does it signal a change in India’s attractiveness as an investment destination? Not really, given FDI levels are similar to what they were last year. What needs to be kept in mind, however, is that while a higher growth rate will make India far more attractive to a Unilever or a Coca Cola or a Pepsi, it remains attractive at even current rates of growth. The reason is simple: the combination of changing income demographics and consumer tastes, the latter often a factor of the former, is making the consumer market boom like no other market is. Analysis done by IHD Professor Rajesh Shukla, for instance, points out that, in 1995, just 20% of Indian households earned more than R90,000 a year (in 2001 prices)—this rose to 46% by 2005 and will rise to 65% by 2015 and to 78% by 2025. As a result of which, the market for consumer goods will rise from R16.5 lakh crore in FY10 to R38.5 lakh crore by FY16. And, while the share of basic food will fall to around 19% by then, the share of high-value foods and FMCG will be around 30%. Nor, as a recent report by Credit Suisse points out, is this just an urban phenomenon. The combination of greater farm growth and productivity has ensured rural wages have risen at a compound annual average of 20% between 2008 and 2013.
Add to this the impact of urbanisation, and we’re talking of an even bigger boost to consumerism. While investors, both local and foreign, need to look at their particular markets—someone setting up a power plant needs to look for coal as well as the financial health of state electricity boards—they need to keep in mind the opportunities to be got in even a dull growth market. And, as the $1.8 billion Mylan takeover of Strides Arcolab’s injectables unit suggests, the opportunities are not restricted to just the consumer goods space. In even today’s depressed conditions, around $600 billion of investments will be made in the economy this year.