mr & mrs india - iccaworld.org n mrs...mr & mrs summer 2009 ... consumer and the country....

IndiaMr & Mrs

Summer 2009

Anirudha DuttaSenior Investment Analyst

2009EDITION

FULLY UPDATED

THE MR & MRS ASIA SURVEYS

Amar GillHead of Thematic Research

Elsa Menezes and Srinivas RadhakrishnanResearch Associates

Summer 2009 [email protected]

Understanding India

http://www.clsa.com/member/reports/422564913.pdf










Two years ago, we set out to discover and understand the consumption trends, priorities and mores of India’s rising middle class, as part of a regionwide study that involved each of the 11 key markets we cover and culminated in the landmark Mr & Mrs Asia report.

As far as Mr & Mrs India were concerned, we found that, although they were markedly conservative, their aspirations were rising rapidly and their optimism was high.

That survey back in 2007 was conducted in the

Anirudha DuttaSenior Investment Analyst

Reinforcing the image of a conservative middle class are our findings that more than half the respondents have no credit cards, 65% don’t own cars and 83% have no mortgages. Of course, these results once again highlight the enormous opportunity that exists as these households start spending to achieve their aspirations.

What impact has the downturn had? Just over one-third of our respondents have taken a hit to their household income. Not surprisingly, savings have been adversely affected and many households have cut back on discretionary spending - yet, at the same time, some have increased their expenditure on essentials such as education and health care.

Despite the downturn, our respondents exhibit a high degree of optimism that may well have been boosted by the surprisingly positive outcome of the recent general elections. Such optimism is consistent with our 2007 survey, as well as our more recent, detailed report On the road: India’s people, places, power and politics. This is no doubt underpinned by the fact that India’s economy continues to grow at a healthy clip of over 6%.

Given this level of optimism, it’s not surprising that so many of our respondents plan to buy property. Some 62% already own their home (versus 71% in 2007 which included homes of parents and in-laws), with 27% wanting to purchase property in the next 12 months (versus 12% in 2007). We attribute this to the decline in real estate prices and interest rates.

The findings detailed in this report provide further insight into what Mr & Mrs India are thinking at this critical juncture. Significantly, they show that, despite the slowdown, their confidence and optimism about the future remain undiminished. This domestic demand is why we believe that the Indian economy will be among the first to turn around, and why we remain firm believers in the resilience of the consumer and the country.

midst of a bull market. Then came the crash. In April and May this year, we revisited our study to see how the slowdown of the past 12 months has affected Mr & Mrs India’s income, spending and outlook.

We surveyed 248 households from 51 cities and towns across 16 key states. Half of our respondents are in the 25– to 34-year-old age bracket. Some 70% are employed (compared with 43% in 2007), and only 22% are businessmen or self-employed (versus 49% in 2007), reflecting the growth in employment in India’s organised sector during the past eight to 10 years.

With 72% having annual incomes of up to Rs400,000 (compared with more than 90% in 2007), our respondents this time around are generally more affluent than those we spoke to for the 2007 survey, although both groups fall within the same socio-economic category, by and large.

Given the differences in job profiles and average incomes, the results of our surveys in 2007 and 2009 aren’t strictly comparable. Nonetheless, the common socio-economics of the two groups ensures a high degree of homogeneity, as is clear from many of the responses.

Foreword


Key findingsThe average family of 4.7 people lives in a 1,300-1,400sf apartment; 62% own property, but only 17% have a mortgage

35% of households own cars, but 58% do not have credit cards

40% of respondents have been affected by the economic downturn; and 31% have seen family members affected

As a result, 61% have changed their spending patterns; and 86% are saving less this year than they did last year

Spending on holidays and jewellery have been cut the most; spending on education and food & groceries have increased

Average household savings are 10.4%, which is significantly below the national average of over 30%

Despite the slowdown, 65% expect employment prospects to improve over the next 12 months

And despite the impact on employment and income, there’s a clear desire to buy property after the price pullback

There is little participation in the stock market by this group, with 84% not having bought stocks over the past 18 months

Over the next 12 months, 27% want to buy a house and 19% want to buy a car

Deposits have been the best investment during the past 12 months

33% of respondents have confidence in the government's ability to handle the slowdown, versus 41% who don’t

Rising prices and employment prospects are the biggest concerns


Key findings: 2007 versus 2009

Deposits and propertyLand and propertyMost profitable investment

On average, our respondents save 10.4% of their after-tax income

On average, our respondents saved 13% of their income

Saving

33% of those not planning to buy in the next 12 months say they will do so in the next two to three years

21% planned to buy within the next three yearsPlanned vehicle purchase

35% of respondents have a four-wheeler19% of households had a four-wheelerCar

27% plan to buy a home in the next year12% planned to buy property in the near futureProperty

20092007


Investment conclusionsProperty sector. Latent demand for housing remains strong. With property prices cooling off and interest rates declining, 27% households are now keen to buy property during the next 12 months. Overall, we remain U-WT the sector, but our relative preferred pick is Unitech.

Retail financial services. Lower interest rates and a concerted effort by state-owned banks, in particular, to encourage lending is resulting in growth of the retail portfolio. Our survey shows penetration of products such as loans and credit cards still has a lot of room to grow. Long term, we prefer private-sector firms such as ICICI Bank, Axis Bank and HDFC.

Autos. Two-wheelers have high penetration (72%, according to our 2007 survey). That 65% of our respondents don’t own a car is indicative of the latent potential: 19% want to buy one during the next 12 months; 33% of the rest want to buy within the next two to three years. With 40% of respondents preferring Maruti, it remains our key pick in the sector.

Consumption spending. During the slowdown, families have cut back discretionary spending, which has adversely affected sectors such as travel, leisure and high-end discretionary areas. We remain cautious on sectors such as airlines, hotels and retailing because of a combination of demand and balance-sheet issues; however, any rise in incomes will result in increased spending on these. Long-term winners are Titan and Jet Airways.

Education. Despite the slowdown, education remains a priority and spending has increased the most during the past 12 months. With 61% of households having at least one child, and about 70% of them still under 10 years of age, we remain believers in this sector’s long-term potential. Our top pick remains Educomp.


Demographics: Who and where

India has 240m households, with more than 30% of the population living in some 5,000 cities and towns

Officially, the population is classified by socio-economic (SEC) groups, based on education, employment and ownership of assets

These classifications overcome the issue of under-declaration of income, which is estimated to be high

SEC A accounts for about 10% of the urban population; SEC B about 17%; and SEC C about 21%

The lower ends of SEC A and SEC B are usually defined as middle class

SEC classifications of urban India

Median age: India is a young nation

38

37

30

36

24

44

44

39

39

31

0 10 20 30 40 50

UK

Russia

China

US

India2000 2025

(Years)

SEC A

10%

SEC B

17%

SEC C

21%SEC D

24%

SEC E

28%

Source: Technopak


India’s labour-force growth (YoY)

Demographics: Young and fertileIndia forms a traditional pyramid

The fertility rate of 2.9 births per woman is among the region’s highest

India’s population grew at 1.7% over 1990-2005, compared with 2.1% during the previous two decades

The country’s labour force will grow at 1.7-1.84% per year through to 2015

India’s population pyramid in 2000 . . .

. . . and the forecast pyramid for 2025

60 40 20 0 20 40 60

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+Female

Male

(%)

60 40 20 0 20 40 60

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+Female

Male

(%)1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

81 84 87 90 93 96 99 02 05 08 11 14 17 20

(%)

Source: United Nations, Hokenson & Company, ILO


Demographics: Young and literate65% of the population is under 35 years old; and half of these are under 25

13m people enter India’s urban workforce each year

81% of urban India is literate, but graduates account for less than 12% of the population

Skilled and unskilled workers account for 23% of the population; only 8% hold white-collar jobs

Breakdown of India’s population by education

Literate, butnot formal

2%

School to Std 46%

School to Std 5-934%

SSC/HSC

23%Illiterate

19%

Postgraduate - professional

0%

Postgraduate - general 2%

Graduate - professional

1%

College but not graduate

4%

Graduate -general

9%

Source: Technopak


Respondent demographicsOur survey, covering 51 towns and cities, involves almost 250 families

88% of our sample is over 25 years old; and our respondents’ average age is 33

Almost 90% are graduates; 70% are white-collar workers; and 21% are self-employed or businessmen

72% of our respondents are married; and 56% live with extended (joint) families

76% of the households comprise three to six people; on average, there are 4.7 people in each home

61% of households include children; the average number of children is 1.8

Almost 58% disclosed an annual income of Rs100,000-400,000 (US$2,200-8,800)

We surveyed 248 families across 16 states

BangaloreChennai

Hyderabad

Mumbai

Akola

Ahmedabad

IndoreRaipur

LucknowAllahabad

Varanasi

Patna

New Delhi

Kolkata

Asansol

Behrampore

Guwahati

Shillong

Jaipur

Agra

Anand

Aurangabad

Bhagalpur

Bhubaneshwar Cuttack

BangaonBurdwanDewas

ThaneTalegaon

Ghaziabad

Ghazipur

Firozabad

Raniganj

Nagpur

Jhansi

Kharagpur

Jhunjhunu

Kanpur

Khopoli

Konnagar

Madgaon

Mednipur

Milak Rampur

Rampur

Ranchi

Saharanpur

Pune

Noida

Meerut

Source: CLSA Asia-Pacific Markets


Respondent demographics cont’d

Breakdown of respondents by age

Breakdown of respondents by gender

Breakdown of respondents by marital status

Do you live in a joint family? Children in your household?

We interviewed the chief wage-earner in each home

12% of respondents are below 24 years of age; and 9% are over 45 years

15% of our respondents are female

45 years +9%

15-24 years12%

35-44 years30%

25-34 years49%

No44% Yes

56%

Married72%

Unmarried28%

Male85%

Female15%

Yes61%

No39%



Respondent demographics cont’d Almost 58% disclosed an annual income of Rs100,000-400,000 (US$2,200-8,800)

More than 57% of our respondents are graduates; 32% are post-graduates; and 11% studied up to higher secondary

70% of our respondents are executives or associates; 12% are businessmen; 9% are self-employed; with the rest being engaged in “other activities”

Breakdown of annual household incomes

Breakdown of respondents by occupationBreakdown of respondents by education

Business12%

Self-employed

professional9%

Other8%

Shop owner1%

Executive/Associate

70%

Rs0.11-0.2m25%

Rs0.21-0.4m32%

Up to Rs0.1m15%

Can't say6%

Rs0.41-0.8m

22%

Graduate57%

Post-graduate32%

SSC/HSC5%

Intermediate5%

School to Std 91%



No39%

Yes61%

People at home56% of our households comprise four or fewer family members

44% of our households have more than five members (versus 36% in our 2007 survey)

61% of our households have children

Of those with children, 47% have at least one child

Average number of children per household among our respondents is 1.8

Average age of the children is 7.8 years

Breakdown of householdsby number of members

If so, how many children?Children in your household? Breakdown of children’s ages

1-28%

7-89%

9-106%

11+1%

5-628%

3-448%

Four5%

>Four2%One

47%

Two36%

Three10%

11-15 years19%

>15 years13%

0-5 years36%

6-10 years32%



People at home cont’d62% have dependents other than children

34% have three or more dependents other than children

Dependents are mostly parents and in-laws (accounting for 65% of total dependents)

Spouses (mostly wives) are the other major dependents, although more women now work

If so, how many dependents?

Any dependents at home?

Who are the dependents ?

No38%

Yes62%

Four6%

Two29%

One36%

Three26%

>Four3%

0 20 40 60 80 100 120

Mother

Father

Spouse

Brother

Sister

Grand mother

Mother in law

Uncle

Daughter in law

Sister in law

Grandson

Father in law

Nephew

Niece

(No.)



Income: Middle-class households72% of our respondents earn up to Rs400,000 per annum (US$8,000); and 22% earn more than Rs400,000 (US$16,000)

Thus, our sample represents middle-income and upper-middle-income households

With 70% of our sample employed in the organised sector, it is likely that they have disclosed their real incomes

Breakdown of India’s labour force by occupation

Average household incomes: Our surveys vs official data

64.9

Official data

14.5

Our 2009 survey

10.5

53.7

30.8

Our 2007 survey

100100100Total

na6.02.4Can't say

0.3na0.1>Rs2.5m

0.6na0.1Rs0.81-2.5m

1.621.82.4Rs0.41-0.8m

6.533.1Rs0.21-0.4m

26.224.6Rs0.11-0.2m

<Rs0.1m

(%)

Retired2%

Businessman1%

Executive (junior)

7%

Student18%

Self-employed professional

0%

Petty trader12%

Skilled worker10%

Not working36%

Unskilled worker13%

Executive (middle/senior)

1%

Source: Technopak, NCAER, CLSA Asia-Pacific Markets


Income: Impact of the downturn40% of respondents say the downturn has affected their own employment, which probably reflects uncertainty in the job market and income declines

31% of our respondents say the downturn has affected the employment of other family members

Half the households have seen no decline in income; 34% say their overall household income has been hit

64% of those affected saw incomes decline by more than 10%; 22% saw incomes decline by over 20%

Has the downturn affected your own employment?

Has it affected the employment of other family members?

Has it affected your overall household income?

If so, by how much has overall household income declined?

No60%

Yes40%

Yes34%

No54%

Can't say12%

Yes31%

No57%

Can't say12%

11-20%42%

0-10%36%

21-30%14%

>30%8%



11-20%28%

0-10%62%

21-30%10%

Savings: Hurt by the slowdown10% of post-tax income is saved; this is below the national average of more than 30% (a similar result to that from our 2007 survey)

The low savings rate among our respondents is a reflection of their age and income profile

86% are saving less today than they did a year ago

Savings of 38% of our respondents have declined by more than 10% as the slowdown has started hurting

Saving more or less than last year?

How much of household after-tax incomevarious respondents are able to save

If saving less, by how much? If saving more, by how much?

>30%4%

0-10%62%

11-20%25%

21-30%9%

More14%

Less86%

0-10%62%

11-20%30%

31-40%1%

21-30%7%



Investments: Best and worstProperty and deposits account for the major part of our respondents’ savings

Gold and jewellery also remain important

During the past year, deposits have been the best investment; and stocks the worst

Surprisingly, property features high on both the best- and worst-investment lists; this is possibly a function of timing

Breakdown of our respondents’ wealth

Best investment during the past 12 months? Worst investment during the past 12 months?

0 10 20 30 40 50

Property

Deposits

Business investments

Cash

Gold/jewellery

Bonds

Stocks/shares

Foreign currency

Other (%)

0 40 80 120

Deposits

Property

Cash

Bonds


Stocks/shares

Foreign currency

Other (No.)

0 20 40 60 80 100

Stocks/shares

Property

Bonds

Cash


Deposits

Other (No.)



Major household expenses Biggest expense for respondents is rent or mortgage, averaging 21% of total outgoings

Spending on food and groceries is a close second at 20%

Education is the third-biggest cost, accounting for 15% of households’total expenditure

Average spending as % of total expenditure

21

20

15

13

10

10

9

0 10 20 30

Rent/mortgage

Groceries

Children's education

Transport

Healthcare

Clothing

Communications (%)



Spending: Discretionary items cut61% of our households have effected major changes in their spending patterns

Spending on holidays, jewellery, utilities and transport have been cut

However, there have been minimal cuts to education, loan repayments and healthcare (non-discretionary expenditure)

For those whose expenditure has gone up, education, food & groceries and healthcare are the major beneficiaries

Expenditure on food & grocery has risen along with food prices

Have your spending patterns changed vs last year?

Where have you cut back on spending?

What have you increased spending on?

Can't say11%

Yes61%

No28%

Holiday

Jewellery

Fuel & transportRent & utilities

(phone/cable/internet)Apparel

Food g Groceries

Healthcare medicines

Education

Loan repayments

Other

0 20 40 60 80 100

(%)

0 20 40 60 80 100

Education

Food & groceries

Healthcare & medicines

Fuel transportRent & utilities

(phone/cable/internet)Loan repayment

Apparel

Jewellery

Holiday

Other (%)



Future spending: Who wins, who loses?

Holidays, utility expenses, transport and jewellery top the list of likely cutbacks if a major breadwinner lost their job

Education, jewellery and holidays would be the key beneficiaries if incomes rose

Retailers and airlines should start doing well as consumer confidence recovers

45% of respondents plan to buy consumer goods in the next six to 12 months

Do you plan to buy any of these major items in the next six to 12 months?

If a significant earner in your home were to lose their job, what would you cut back on?

If a significant earner in your home were to make more, what would you increase spending on?

HolidayRent & utilities

(phone/cable/internet)Fuel & transport

Jewellery

Apparel

Food & groceries

Loan repayment


Education

Other

0 50 100 150 200

(No.)

0 50 100 150

Education

Jewellery

Holiday

Food & groceries


Apparel

Fuel & transport

Loan repayment

Rent & utilities(phone/cable/internet)

Other (No.)

2719

45

5959

22

1422

32

0

10

20

30

40

50

60

70

80

90

100

Home Car Consumer goods

Yes No Can't say(%)



Investments: Staying away from stocksDespite stocks and shares being seen as the worst investment option, 16% have invested in them during the past 12 months

And 13% say they plan to invest during the next 12 months

However, most lower-middle- and middle-class families still don’t see stocks and shares as an investment option

How much of your savings have you used up to compensate for a decline in income?

Have you bought stocks or shares during the past 12 months?

Do you plan to buy stocks or shares during the next 12 months?

Yes16%

No84%

Yes13%

Can't say21%

No66%

0-10%69%

11-20%22%

21-30%8%

>30%1%



Property: High level of ownership62% of our respondents own their home; traditional families staying in their home-towns typically own their homes. Our findings are consistent with our 2007 survey results

27% plan to buy a home in the next 12 months -significantly higher than the result from our 2007 survey, when only 12% said they were looking to purchase property

This difference is probably due to the 20% decline in property prices from end-2007 to 2009, coupled with lower interest rates

Our Mar-09 Housing Buyer Survey highlighted that 80% of potential home-buyers planned to purchase during the next one to two years

Our respondents believe that property prices have come off by an average of 15% since peak; but 90% say they don’t think prices are lucrative enough just yet

Do you plan to buy a home in the next 12 months?

Does you own your home?

No38%

Yes62%

No59%

Yes27%

Can't say14%



Mortgages: Room to grow17% of our respondents have a mortgage -significantly higher than the results of our 2007 survey, when only 7% had taken out housing loans

This could be attributable to better credit availability during the past few years; credit growth on mortgages for home-buyers grew 35% FY07-09

As well, the respondents to our latest survey are generally from a higher income group, although they’re largely from the same socio-economic stratum

8% of our respondents have mortgages on two properties, suggesting that purchases of property for investment has increased during the past two years

Yes17%

No83%

Do you have a mortgage?

How many properties have you bought on mortgage?

One92%

Two8%



Cars: Desire to drive35% of our respondents own a car -considerably more than the 19% of our 2007 respondents who owned a four-wheeler

This difference is probably partly due to the income differences in the two samples, but also to increased penetration of cars during the past two years

Between FY91 and FY09, two-wheeler penetration in India has increased from 16.9 to 69.9 (per 1,000 people)

Yes35%

No65%

Does your household own a car?

Increase in two-wheeler penetration

(Two-wheeler/'000)

0

10

20

30

40

50

60

70

80

FY51

FY61

FY71

FY73

FY75

FY77

FY79

FY81

FY83

FY85

FY87

FY89

FY91

FY93

FY95

FY97

FY99

FY01

FY03

FY05 E

FY07 E

FY09 E



Cars: Desire to drive cont’dBetween FY91 and FY09, four-wheeler penetration has increased from 3.5 to 12.9 (per 1,000 people)

Almost 20% of our respondents plan to buy a car during the next 12 months

33% of those not looking to buy a car in the next 12 months say they will do so in two or three years

Do you plan to buy a car during the next12 months?

If not, do you plan to buy in the next two to three years?

Rapidly rising car penetration

Can’t say22%

Yes19%

No59%

No46%

Can’t say21% Yes

33%

(Cars/’000)

0

2

4

6

8

10

12

14

FY51

FY61

FY71

FY73

FY75

FY77

FY79

FY81

FY83

FY85

FY87

FY89

FY91

FY93

FY95

FY97

FY99

FY01

FY03

FY05 E

FY07 E

FY09 E



Credit cards: Low penetrationThat more than half our respondents don’t have credit cards demonstrates India’s low level of penetration; that 80% of those in our 2007 survey didn’t have cards suggests the pace of growth

Average monthly spending on credit cards is more than Rs2,700; those who have credit cards are using them actively

65% of our respondents are buying less with their credit cards; clearly, consumers are more cautious in this uncertain economic climate

Household’s monthly spending on credit cards?

How many credit cards do you or your chief wage earner have?

Are you buying less or more using credit cards?

If less or more, by how much?

More35%

Less65%

>Three1%

One25%

None58%

Two0%

Three7%

<Rs100021%

>Rs500018%

Rs2001-Rs3000

15%

Rs1000-Rs2000

24%

Rs3001-Rs400011%

Rs4001-Rs5000

11%

0 10 20 30 40 50

0-10%

11-20%

> 20%Less More



Looking forward: Still optimisticMost of our respondents are optimistic about the future - not surprising, given that economic growth is holding up fairly strongly

65% expect employment prospects to improve; only 5% expect them to worsen

Rising prices and unemployment or a fall in income are their in financial concerns -this is consistent with our 2007 survey

Medical costs are also a growing financial concern, as reliance on private health care increases

Education costs are another big worry for our respondents

Do you expect employment prospects to improve in a year?

What are your main financial concerns?

Worsen5%

Improve65%

Remain the same30%

0 40 80 120 160 200

Rising prices

Unemployment/income decline

Education fees

Medical costs

Housing prices/rents

Pension

Other (No.)



Government: Strong vote of confidence33% say they’re confident about the government’s handling of the downturn; 41% say they’re not

This approval rate is higher than expected, primarily due to the standing of Prime Minister Manmohan Singh

Confidence in the government is likely to be even higher since the elections (our survey was done before the poll results were declared in May)

The new government’s top three priorities should be: improving employment prospects; controlling the prices of food and essentials; and security and fighting terrorism

Many also nominated infrastructure as a key priority for government

Do you have confidence in the government’s ability to handle the downturn?

What should be the government’s top priorities during the next 12 months?

Employment

Prices of food / essential items

Security / Prevention of Terrorism

Education

Infrastructure

Access to quality healthcare

Property prices

Religious and Caste issues

Relations with neighbours (Pakistan)

Access to credit / Loans

0 40 80 120 160 200

(No.)

No41%

Yes33%

Can’t say26%



Upcoming CLSA Forums

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© 2009 CLSA Asia-Pacific Markets ("CLSA"). Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%. Performance is defined as 12-month total return (including dividends). 17/02/2009

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