Ashika Monthly Insight August 2016

AUGUST 2016
MARKET OVERVIEW
Assam and Meghalaya saw extremely heavy rainfall at the
beginning of the week. According to media articles, in
the initial part of August, central, north-west and
peninsular regions will receive normal to above-normal
rainfall. The east will receive below-normal rainfall, IMD
said. So far, 80% of the country’s area has received
normal to excess rainfall and 20% has received deficient
rains. Saurashtra and Gujarat are facing the highest
rainfall deficit in the country of 57% and 43% from the
long-period average, respectively. The coming week is
expected to hold good news. The other major boost
towards consumption is from Pay commission recently
implemented by government. The share of discretionary
spending over necessities has been increasing since
1995. Basic spends on needs such as food and clothing
is not increasing in the same proportion keeping parity
with increase in income and prosperity. However,
discretionary spending has been showing exceptional
growth. Discretionary spending share in total household
consumption during 1995 stood at 39% which grew to
52% in 2005. Over the time it is expected that value
would migrate from basic spends categories to
discretionary spend categories and discretionary
spending share would move to 70% of total household
consumption by 2025. In this context, a best fitted
example is need for personal transport where two
wheelers now become the basic spend, whereas cars are
the discretionary spend. Rise in discretionary spending
should be backed by steady increase in per capita
income. India’s per capita income grew at modest pace
of 2.8% CAGR between FY10-FY14 and as per report of
Euromonitor it is expected to grow at a CAGR of 8.6%
during the period between 2015-2016. The report also
stated that the Indian median income per household is
set to increase by 89.8% in real terms to reach USD
10,073 (in constant 2014 prices) by 2030. Such growth
in income would transfer the consumer spending of
Indian middle class from “bottom of the pyramid” market
towards a greater and more sophisticated level. The rise
in discretionary spending would be primarily driven by
middle class people. A report from Credit Suisse “Global
Wealth Report 2015” stated that there are 664 million
adults belonging to the global middle class in 2015, or
14% of the adult population, where India has 23.6 million
adults who qualified as middle class in 2015, thus
representing about 3% of the global middle class. India
added 6.7 million adults to the middle class over these
15 years, and middle-class wealth rose by USD 1.2 trillion
and it accounts about 22.6% of the country’s wealth. The
wealth of middle class had grown exponentially between
2000 to 2007, which went up from USD 2,040 to USD
5,100. Hit by global economic crisis the wealth per
middle class adult plunged by 26% after which it settled
at USD 5,300 in 2010. It continued to fall due to adverse
exchange rates and was estimated at USD 4,352 in 2015.
Government has given big bonanza to central government
employees by approving 7th pay commission which
according to India Ratings & Research will boost
consumption in the economy by Rs 45,110 crore (0.3% of
GDP) and increase savings by Rs 30,710 crore (0.2% of
GDP). Incremental disposable income would lead to rise in
discretionary spending which in turn would drive the
demand for passenger vehicles, housing, consumer
durable products, apparels, etc. Good monsoon during this
fiscal is also raising hopes of improvement in farm income
which remained depressed in last two years on account of
scanty rainfall. A report of Goldman Sachs stated that if
the rural economy grows by one percentage point, it
could potentially boost overall gross domestic product
(GDP) growth by up to 70 basis points over two quarters.
Further, government has shown their strong commitment
in spurring the rural income by increasing budgetary
allocation towards agricultural & rural development during
FY17 budget. Government has increased budgetary
allocation to the ministry of Agriculture and Farmers
welfare by ~94% YoY to ~Rs 445 billion and ~25% YoY
increase in total Plan rural spending at Rs 878 billion
during FY17. Such massive budgetary allocation towards
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