There are over 4 billion consumers worldwide yet to be served. However, to tap the growing opportunity, marketers need a nuanced understanding of local consumers, say researchers
The centre of gravity, especially from the consumer perspective, is shifting away from North America and Europe. In the decades to come, emerging economies will deliver more growth- and more profits, said the Nielsen Company.
Nielsen's Hany Mwafy, managing director for North Africa and James Russo, vice president for global consumer insights, in a presentation said that by 2030, the developing world's middle class will be larger than the total populations of Europe, Japan and the United States combined.
Nielsen said between 2008 and 2014, Brazil, Russia, India and China (the BRIC nations) are expected to grow 61.3%, compared to only 12.8% growth in the G7 nations-the US, UK, France, Italy, Germany, Canada and Japan.
Back home, the same trend can be seen when we compare mid and small towns with metros. Financial inclusion, improved agriculture markets, industrialisation and media & telecom penetration have meant that satellite and other towns now exceed the overall market size and growth compared to the top six metros in the country.
"Assuming growth differentials of 2% at current levels, these markets, on a combined basis, would be 25% higher versus the top six metro towns," said Ambit Capital Pvt Ltd in a research note.
Led by media, the choice expansion that can be seen in several categories has been substantial. At present, global marketers' combined share of turnover from India is less than 1% compared to 3% contribution to global consumption by India. Nearly two-thirds of the top 100 global marketers are already present in the country and are expected to increase their investments to drive further expansion.
In India, education, social empowerment and rise of the services sector have supported improvement of the status of women significantly. Women are expected to influence more than two-thirds of consumption expenditure in India.
Some areas that are likely to see significant growth because of their changed social and economic status are apparel, food and grocery, consumer electronics and a host of products and services addressing health, beauty and fitness.
As more women enter the workforce, their earning power increases, as does their power within their households. Women now control almost $12 trillion of the $18 trillion in global consumer spending, the Nielsen presentation pointed out.
Mobile phones are proliferating in the developing world, bringing Internet access to consumers who have never had a PC or been online. In line with PC usage growth of about 21%, Internet usage in India has also seen significant increase by about 31% and currently stands at an estimated base of 75 million users in urban markets. The usage is not restricted to merely metros but has spread to remote corners with the smaller towns accounting for higher numbers.
Speaking about the proliferation of the Internet, Ambit Capital said, "In our opinion, the reach of the Internet will have significant influence on consumption of services sectors such as education, music, travel, gaming, news and banking over the next decade. With improved bandwidths we expect that rural India will increasingly become extensive users of this service."
Women along with the youth (aged between 10 years to 25 years) will continue to grab the focus of all marketers. Influence of both these categories is also borne out by the media spend in television and the press, where it is estimated that collectively more than 50% of the spend is exclusively targeted at these segments.
According to a FICCI-KPMG report on media and entertainment, during 2009, advertisements related to food & beverages with an 11% share dominated the small screen while education with a 15% share ruled print ad-spend.
In 2009, average daily TV viewing worldwide was a record 192 minutes. This type of TV viewership can support growing acceptance of multinational brands, said Nielsen.
However, TV viewership in India is divided into about 395 channels. Unlike other markets, the Indian market is significantly heterogeneous which is best epitomised by the fact that there are nearly 122 languages and 234 mother tongues with minimum speaker strength of 10,000, as per the census of 2001. These trends of heterogeneity are expected to continue to drive importance of customisation and reach, as opposed to just superior product and attractive pricing in several markets.
"In our opinion, therefore, not just superior products but supply chains and distribution reach will be extremely critical from the growth perspective. Organisations with robust supply chains and distribution reach in our opinion can enjoy growth rates almost 50% higher the normal growth rates," said Ambit Capital.
Nielsen said that there are over 4 billion consumers worldwide yet to be served, however, to tap these growing opportunities, marketers need a nuanced understanding of local consumers. According to Nielsen, the key lessons for marketers would be to listen and learn, set expectations, not to overreact to political and economic changes and be flexible.
While setting expectations, Nielsen advised global marketers not to assume that they will be able to easily take a leadership position, as there may be strong competition. Citing the example of Coca-Cola, which took 20 years to achieve parity with Pepsi in Egypt, Nielsen said marketers need a global perspective but local expertise. Over time, emerging market innovations will spur change in mature markets, it said.
"Marketers need to be able to tolerate both risk and complexity, and take a long-term view given the uncertain political climate in so many of these countries. For those willing to take the challenge on, the rewards can be enormous," Nielsen added.
On 15 May 2010, Moneylife Foundation held an interactive workshop on banking services.
The revised Direct Tax Code revises a quarter century of philosophy behind popularising the equity cult
If the revised version of the Direct Tax Code (DTC) is implemented, it will mean a huge departure from over 25 years of policymaking in India under which equity capital and stock markets have progressively come to attain a pride of place as a key source of raising capital. The DTC proposes to bring down this pre-eminence of equities by slashing their post-tax returns while enhancing the post-tax returns of six forms of retirement products, only one of which may have a substantial component of equity investments.
The government has proposed a new regime for truly long-term savings schemes under the new DTC while making long-term gains from equities and equity-linked mutual funds taxable. Short-term capital will be fully taxed. These moves will completely alter the relative attractiveness of retirement products and equity investments. The former, like the New Pension Scheme (NPS), Public Provident Fund (PPF) and pure insurance schemes, are being favoured while equity products and Unit-linked insurance schemes are suddenly out of favour. This is not minor tinkering.
The difference in tax treatment of these two classes will be so huge as to substantially undermine what the government has been preaching and advocating for the past quarter century that reached a crescendo a few years ago.
Simply stated, the government is now saying that mutual funds, equities and ULIPs are just another source of capital-just as fixed deposits and bonds-that do not deserve much preferential tax treatment. There is no need to treat providers of risk capital, namely, equity, as Brahmins. This represents a massive setback for equity investments which the government went all out to promote ever since India started liberalisation in the mid-80s. Equity markets used to be open for two hours everyday back then and were seen as dens of speculation. There were no mutual funds-only Unit Trust of India. The Indian market was closed to foreign investors and Life Insurance Corporation of India was virtually the only domestic institutional investor.
After Rajiv Gandhi became the prime minister, capital market reforms became a key agenda. Various committees were formed which progressively led to formation of the first mutual fund (1989), first venture capital fund (1988), formation of the Securities and Exchange Board of India (1992), allowing foreign institutional investors (1993), allowing private sector mutual funds (1994), creation of first anonymous order-matching electronic exchange (1994) and so on.
Fostering the "equity cult" became the new mantra. A huge bull market started at the peak of which in 1994, Indian equities became most expensively valued in history-a P/E of 30. At the same valuation, the Sensex would be 33,000 today.
The wild success of Reliance Industries and other children of liberalisation such as Videocon and Gujarat Ambuja only served to burnish the sheen of equities.
All the institutional developments described above were matched by a progressively more and more favourable tax treatment which really boosted the attractiveness of equities. Till last year, short-term capital gains were taxed at 10% (increased to 15% now) and long-term returns were tax-free. This means that for the value-creating activity of, say, buying the shares of Reliance Industries for one day and selling it a few days later you would pay a tax of just 10%. More concessions poured that boosted equity returns. Interest from corporate fixed deposits is taxed but dividend income is not. To spread insurance, the government allowed investment in Unit-linked Insurance Plans to qualify for tax exemption when the bulk of ULIP money goes into equity markets in search of higher returns.
The revised tax code, if implemented, will mean a fundamental change in the way people will perceive equity capital from now. Short-term capital gains from equities and mutual funds would be fully taxed and long-term capital gains would be taxed too. ULIPs would no longer enjoy tax-free status.
How will these changes affect the key players in the stock markets? The businesses of life insurance companies have been badly hit. They have been thriving on ULIPs, aggressively sold as tax-savings products at different times during the year, most notably in March. Many of these are private insurance companies that seem to have turned the corner on the strength of their ULIP sales; they were getting ready to make public issues and get listed. Mutual funds are another set of players who would be hit by the revised DTC. They had problems of their own since last year when SEBI changed the rules of how funds can be sold. As a result mutual funds have been hit by continuous redemptions since August 2009. A possible tax hit for unit-holders under the revised DTC worsens their business model. The only redeeming feature, if any, is that pension funds are supposed to invest in index companies (50 for Nifty and 30 for Sensex) and that will ensure that the market indices stay up. But this also means that 99% of the companies will not receive investment from pension funds. Further, even if thousands of crores flow into pension funds, the asset management companies have bargained to manage the pension money at a negligible fee. It is not a business model worth talking about.
But faced with momentous change that rolls back 25 years of relentless progression towards making equities attractive, the stock market has held steady.
It even went up sharply today. There is surprising calm among companies with huge stakes in the stock market. Does this mean that the market does not believe that these changes will actually happen? Possibly. But if the government is indeed firm on implementing these changes, expect a major market correction. But that will be most visible but least impactful of the massive changes that will roil the capital market for years together.