ICICI Securities recommends discretionary stocks for anticipated structural growth owing to formalization and income growth. Its analysis highlights a significant rise in the private corporate sector's wage bill, indicating higher-than-average income and a potential boost in per capita discretionary consumption. However, a near-term challenge is the IT hiring slowdown, affecting wage bill growth, it added.
These discretionary sectors include personal products, home furnishings, financial services, transportation, auto, communication, education, and audio-visual recreation. These stock-related sectors are expected to benefit from a growing "competitive advantage period", it said.
A cyclical increase in capital expenditure, a growing real estate sector, and global interest in establishing high-end manufacturing facilities, particularly in electronics are positive indicators for future discretionary consumption, the report added.
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The brokerage acknowledges that India's declining population growth may structurally reduce its contribution to consumption growth. Nevertheless, per capita private consumption has grown significantly in the last two decades, reaching around Rs 10,000/month in FY23. This growth is driven by a substantial rise in discretionary spending, which now represents roughly 43 percent of total expenditure, while essential categories, such as food, clothing, house rent, and utility services, except for health, have decreased.
Food and beverages (F&B) had a 49 percent consumer wallet share in 2000 but now it's down to 32 percent. Discretionary products (excluding food, beverages, utilities, health, and rent) now hold a 43 percent share, up from the previous 32 percent.
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Other essentials like housing rent, utilities, and clothing have lost wallet share, except for health. Protein food spending is increasing, with high-protein products like dairy, meat, eggs, and fish now making up 32 percent of F&B consumption, it added.
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