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D2C, a flourishing business model on the rise in India, involves brands selling their products directly to consumers, eliminating the need for traditional retail intermediaries. With more than 800 emerging brands adopting this strategy, D2C has experienced remarkable growth, allowing brands to establish direct connections with consumers and meet their demands effectively.
The Covid-19 pandemic acted as a catalyst, accelerating the expansion of prominent D2C brands, especially those with a robust online presence, leading to a substantial surge in consumer demand. The Indian D2C market is expected to reach $100 billion by 2025.
Image Source: Statista | Numbers are in Billion USD
Traditional Model
D2C Model
Image Source: Statista
D2C space has immense potential due to various factors including:
Key Brands:
Data Source: Inc42
Logistics play a crucial role for D2C brands in India, ensuring efficient delivery of products directly to consumers.
Streamlined logistics operations are essential for maintaining customer satisfaction and loyalty in the competitive market.
India’s abundant asset lies in its population, encompassing skilled IT professionals, entrepreneurs, and diverse job classes, all embracing the D2C model. Being one of the youngest nations globally, with an average age of 29 and 66% of its population below 35, India presents immense market potential. With 1.15 billion mobile phone users, the Indian D2C segment offers a promising avenue for growth in the upcoming years.
Read more about Economy and Market: The Rising Middle Class: Fueling India’s Luxury Market Revolution
The luxury market in India has been growing steadily, even in the face of global challenges such as recession, the pandemic, and high inflation. This segment has proven to be recession-proof and continues to attract consumers.
Image Source: Deloitte
Image Source: Fortune India
India’s luxury market shows immense potential for growth, with projections reaching up to 200 billion dollars by 2030. The rise of conscious consumers and their demand for sustainable luxury experiences presents both challenges and opportunities for the industry. As more international brands enter the Indian market, the landscape of luxury in India is set to evolve further.
Read About: The Relationship Between Macroeconomics and Stock Markets
Total Electronics market – India (Value in INR billion)
India’s electronic goods exports and production by value – $ billion (Source: IBEF)
Value Chain of the Electronic Manufacturing Services (EMS) Industry:
OEM (Original Equipment Manufacturer)
EMS (Electronic Manufacturing Services)
ODM (Original Design Manufacturer)
The distinction between ODM and EMS has become blurred over the years, with EMS offering a range of design services to their clients. However, EMS typically gives OEMs more control over their IP and decision-making than an ODM would
EMS Market Share by Geography
Estimated Export Trends of Indian Electronics Industry by 2026 (US$ billion)
Source: Vision Document on Electronics Manufacturing (Electronics Production in India)
Read About: Against the Tide: India’s Stable Economy Amidst Global Challenges
The stock market is influenced by a variety of factors, including the overall economy of the particular country. Understanding how macroeconomic issues affect the stock market is critical for investors looking for trustworthy investment advice. The following article will look at the relationship between key economic conditions and stock market performance.
Gross Domestic Product (GDP) Growth:
The GDP growth rate is a good indicator of economic health. A healthy economy with substantial GDP growth usually leads to excellent stock market performance. GDP data is closely monitored by investors because it indicates general economic activity, consumer spending, and business investment. When GDP growth exceeds estimates, investors gain confidence, which leads to increased stock market participation. The below shows the correlation between GDP and Stock Market. (Sensex)
Data Source: BSE, World Bank
Interest Rates and Monetary Policy:
Central bank interest rates have a considerable impact on borrowing costs, spending habits, and investment decisions. Lower interest rates increase borrowing and stimulate economic activity, which benefits businesses and stock values. Higher interest rates, on the other hand, can limit borrowing and economic growth, thereby affecting stock market performance. Investors pay close attention to central bank decisions and monetary policy choices for signals about future movements in interest rates. In the below graph we can clearly see that in 2020, when interest rates were decreased the stock market started booming.
Data Source: BSE, RBI
Inflation and Consumer Price Index (CPI):
The Consumer Price Index (CPI) measures inflation, which is the increase in the average price of goods and services over time. Moderate inflation is generally regarded as beneficial to the economy and stock market. Rapid or excessive inflation, on the other hand, erodes purchasing power, raises production costs, and can cause market volatility. Inflation patterns are closely monitored by investors because they affect interest rates, company profitability, and investor sentiment.
Data Source: BSE, MOSPI
Unemployment Rates:
Unemployment rates provides information about labour market circumstances. Low unemployment and strong job creation suggest a thriving economy, increasing consumer spending, and better company profitability. Positive employment trends are often linked to stock market gains. Rising unemployment rates and job losses, on the other hand, can impede economic growth and lead to market downturns.
Trade and International Relations:
International trade is critical in today’s globally interconnected economy. Trade regulations, tariffs, and geopolitical events can all have a substantial impact on stock markets around the world. Trade discussions, agreements, and conflicts are closely watched by investors because they can have an impact on supply chains, business earnings, and market sentiment. Because of the global economic interdependence, it is necessary to comprehend international relations and their possible impact on stock market performance.
When Russia invaded Ukraine, Global trade of crude and few other commodities were affected and this in turn impacted the stock market.
Fiscal Policy and Government Spending:
Government spending, taxation, and fiscal stimulus measures all have an impact on economic growth and stock market performance. Expansionary fiscal policies, such as greater government spending and tax cuts, can improve economic activity while also increasing company earnings and stock values. Contractionary fiscal measures targeted at lowering budget deficits, on the other hand, may have a temporary impact on specific sectors or industries. Investors keep an eye on government budgets and fiscal policy decisions to see whether there are any potential investment possibilities or hazards.
Conclusion
Understanding the relationship between macroeconomic issues and stock market performance is critical for investors seeking to make sound decisions. GDP growth, interest rates, inflation, employment trends, trade dynamics, and fiscal policies all have a significant impact. Investors may navigate fluctuations in the market and position themselves for long-term success by remaining informed about macroeconomic variables and their impact on the stock market.
Remember that, while macroeconomic indicators can provide useful information, individual company analysis, industry-specific concerns, and risk management are all important in making informed investment decisions.
Author: Kevin Jose
India’s economy is thriving despite the difficult economic environment across the globe. According to a recent Bloomberg survey, there is very little likelihood that India would experience a recession in 2023. However, the likelihood of a recession in nations like the US and the UK is higher, with probability ranging from 50% to 75%. Meanwhile, Germany has already slipped into recession with 2 consecutive quarters of negative economic growth. This indicates that India’s economy is performing remarkably well compared to other nations, demonstrating its strength and adaptability on the international stage.
Let us take a look at the positive and challenging factors that have contributed to the positive outlook of the Indian economy:
Strong domestic demand:
Strong domestic demand supported by a young and expanding population, powers India’s economy. The US, Germany, and the UK economies, in contrast, rely heavily on exports, which have been hurt by the global slump.
Consumer spending accounts for over 60% of total spending in India, making it the largest component of GDP. Increased consumer spending contributes to economic growth.
Demographic Dividend
India will benefit from its demographic dividend as a result of its sizable working-age population (15 years – 64 years). India’s young and expanding population boosts its economy, in contrast other developed nations that are dealing with ageing populations and shrinking workforces. This stimulates economic growth by boosting consumer demand for products and services, raising incomes to reduce poverty, and enhancing healthcare and education. India’s favourable demographics provide it a significant edge over other developed countries, even though they do not protect against recessions, and this fosters a positive economic perspective.
India would continue to be the world’s largest provider of human resources. India will account for around 24.3% of the incremental global workforce over the next decade. Currently India has a working age population of 67%, which higher than that of US and Europe.
Resilient Financial System
The Indian financial system is relatively shock resistant. This is due to a variety of factors, including high capital buffers and low non-performing loans. In comparison, the financial systems of the United States, Germany, and the United Kingdom are more vulnerable to shocks.
The banking system in India has a capital adequacy ratio of 13.3%, which is significantly higher than the regulatory requirement of 9%.
Fiscal flexibility
India has fiscal flexibility, which means that it can spend more to stimulate the economy if needed. A higher budget deficit enables the government to spend more on public investments, social welfare initiatives, and infrastructure development, which can stimulate the economy and increase growth.
However, a higher fiscal deficit can also result in an increase in public debt. Higher interest payments may follow, squeezing out investment and potentially contributing to financial instability.
If you look at the below graphs, you can notice that India has not been reducing its fiscal deficit as aggressive as Germany or the US. This in a way contributes to better economic growth.
Higher base line GDP Growth
Recession is defined as 2 consecutive quarters of negative economic growth. Countries like Germany has a base line GDP growth rate in the range of 2-3% and hence their growth is more prone to slip into the negative range.
But India has a baseline growth rate in the range of 4-7%. So, a negative growth rate is mostly not possible for an emerging market like India. Even if GDP contracts, it will most likely remain in the positive range.
Inflation Basket Mismatch
Real GDP = Nominal GDP – Inflation
CPI is the most popular metric used by countries to indicate the level of inflation in their respective countries. After the onset of the Russia-Ukraine war, inflation spiked in various countries. Germany witnessed an inflation of 9% which is 4.5 times more than its baseline inflation levels.
India also saw an increase in inflation. However, India’s inflation remained constant with respect to its baseline inflation. This is mainly because of the mismatch of the basket of components used for calculating CPI in various countries.
In the below graphs we can see that in India’s CPI, Housing only accounts for 10%, whereas in the US, it accounts for 36%. This mismatch maybe one of the reasons why India’s inflation did not show huge increase when compared to countries like the US or Germany.
So lower inflation results in higher real GDP, in paper at least.
Conclusion
In conclusion, despite global economic challenges, India’s economy has performed well in comparison to other countries. A young population’s robust domestic demand, a stable banking system, and budgetary flexibility have all contributed to India’s upbeat outlook. Despite limitations about the method by which inflation is computed, India’s favourable demographics and economic resiliency point to a promising future for continued growth.
Author: Kevin Jose
Title Image Source: IBEF
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