India's economy is undergoing a significant transformation, driven largely by consumer power, which now accounts for over 60% of the country's GDP. This shift towards a consumption economy is influenced by unique local factors that differentiate it from the traditional US model of consumerism. Notably, the first surge in US consumerism occurred post-World War II, characterized by substantial purchases such as 20 million refrigerators. In contrast, India's retail landscape is vast, featuring approximately 15 million outlets, with 11 million dedicated to fast-moving consumer goods (FMCG) [bf4f7d2a].
The liberalisation period from 1991 to 1995 sparked debates about Indian consumption habits, which have evolved dramatically since then. Recent data indicates that 63% of Indians are now seeking immediate loans, with debt repayment emerging as the third-largest household expense. This growing reliance on credit reflects a broader trend in consumer behavior, as retail investors in India surged from 36 million in 2020 to 160 million by June 2024, showcasing a burgeoning interest in market participation [bf4f7d2a].
In the context of the Indian equity markets, renowned economist Ruchir Sharma has pointed out that traditional economic models are failing to capture the nuances of India's financial landscape. He attributes the recent highs in the BSE Sensex and NSE Nifty to the robust flow of domestic money and the financialisation of the economy. Since January 2024, domestic institutional investors have invested nearly ₹3 lakh crore, while foreign institutional investors have contributed ₹13,800 crore, reflecting strong confidence in the Indian market [dc8c93ca].
Goldman Sachs has also expressed optimism about India's market, despite valuation concerns, noting that the MSCI India index trades at 23 times forward earnings. The firm is particularly bullish on sectors such as automotive and industrials, anticipating that the Nifty could reach 26,000 soon. Meanwhile, foreign inflows into Indian debt have exceeded ₹1 lakh crore, although recent foreign selling has amounted to around $3 billion [dc8c93ca].
Consumer activism and regulation are expected to grow in India, with a heightened focus on sustainability challenges. The perception of brands is shifting, with Indian brands increasingly favored over imported ones, reflecting a growing sense of national pride among consumers [bf4f7d2a]. As the Indian economy continues to evolve, the interplay between consumer behavior and market dynamics will play a crucial role in shaping the future of the country's economic landscape.