This Article is From Mar 21, 2012

Where Budget 2012 hurts, Census 2011 soothes

Where Budget 2012 hurts, Census 2011 soothes

Sony CEO Kazuo Hirai, left, listens to former-CEO Howard Stringer | Source: AP

Highlights

  • On our show, Tips for Tomorrow, Ashutosh Sinha, Gul Teckchandani, Investment Strategist and T S Harihar, Senior Vice President at ICICI Securities, discuss the market performance.
Mumbai:

Consumption accounts for close to 70 per cent of India’s gross domestic product or GDP. Finance minister Pranab Mukherjee hiked excise duty and service tax by 2 per cent in the budget for all companies. This makes products costlier as companies would pass on high costs to consumers. It could also slow down sales growth and profitability of companies in the space.

 

Yet, over the past one week the BSE FMCG index rose 4 per cent while the BSE Sensex is down 2.8 per cent. Shares of ITC, Hindustan Unilever, Marico, Colgate have gained ground despite hikes in excise duty and service tax rates. Over the past one year BSE FMCG index is up 29 per cent while the BSE Sensex fell over 2 per cent. 

 

This is because the recent Census 2011 data shows an interesting ‘up’ trend. There is a significant growth in affluence among Indian households as consumers in India switch to better quality products. This is reflected in the rise in the number of housing units, quality of material used to build homes and ownership of vehicles, phones and usage of banking services.

 

Kotak Securities calls it ‘up-trending’ and a game changer phenomenon. The interesting numbers from Census 2011 could certainly excite companies that sell consumer products from toothpastes to soaps to two-wheelers. These numbers also indicate that the ability of households to buy consumer goods has surged over the past two decades. This is a significant driver for growth for FMCG companies going forward.

 

Here are highlights of Census 2011 that make the difference:

 

Consumption accounts for close to 70 per cent of India’s gross domestic product or GDP. Finance minister Pranab Mukherjee hiked excise duty and service tax by 2 per cent in the budget for all companies. This makes products costlier as companies would pass on high costs to consumers. It could also slow down sales growth and profitability of companies in the space.

 

Yet, over the past one week the BSE FMCG index rose 4 per cent while the BSE Sensex is down 2.8 per cent. Shares of ITC, Hindustan Unilever, Marico, Colgate have gained ground despite hikes in excise duty and service tax rates. Over the past one year BSE FMCG index is up 29 per cent while the BSE Sensex fell over 2 per cent. 

 

This is because the recent Census 2011 data shows an interesting ‘up’ trend. There is a significant growth in affluence among Indian households as consumers in India switch to better quality products. This is reflected in the rise in the number of housing units, quality of material used to build homes and ownership of vehicles, phones and usage of banking services.

 

Kotak Securities calls it ‘up-trending’ and a game changer phenomenon. The interesting numbers from Census 2011 could certainly excite companies that sell consumer products from toothpastes to soaps to two-wheelers. These numbers also indicate that the ability of households to buy consumer goods has surged over the past two decades. This is a significant driver for growth for FMCG companies going forward.

 

Here are highlights of Census 2011 that make the difference:

 

• India has 331 mn housing units as of March 2011, a rise of 81 mn units over the last decade. The total number of households is 247m. This means more spending on day-to-day household consumer products like soaps, shampoos, toothpaste and so on.

 

• About 87 per cent households own their homes. The percentage is 95 per cent in rural India and 69 per cent in urban parts of the company. 

 

• Indians now have sturdier roofs. Galvanised, metal, asbestos or concrete roofing makes up for 45 per cent of households against 20 per cent in 1991. These numbers clearly indicate that affordability is rising.

 

• Burnt brick walls make up for 47.5 per cent of households against 34.2 per cent in 1991.

 

• The number of households with cement or mosaic floor or ceramic tiles is up to 42 per cent against 29 per cent in 1991.

 

• The number of nuclear families (with 2-4 members in the household) has jumped to 46 per cent in 2011 against 38.3 per cent in 2001. The number of large families (over 6 members) has slipped to 31.5 per cent against 39.4 per cent in 2001. This lifts the demand for consumer goods further.  

 

• Electricity now reaches 67.3 per cent of the households against 56 per cent 10 years ago and 42.4 per cent in 1991.

 

• Usage of firewood, cow dung cake, crop residue continues to fire 67 per cent of kitchens in India in 2011. The use liquefied petroleum gas or LPG has grown to 28.5 per cent over the decade. However, the rise is due to a switch by largely urban households from kerosene to LPG. This perhaps is the reason why subsidies are prickly for markets and sensitive for politicians.

 

• Banking, television, telephone ownership has surged in both rural and urban households. More than half of rural households own a telephone against only 3.5 per cent ten years ago. 8 out of 10 households in urban parts of the country own a phone against 2 out of 10 in 2001.