An article in this week’s Economist points out some phenomenal data that speaks to our Global Rise of the Middle Class investing theme. While the Middle Class in many developed nations is under pressure, part of our Middle-Class Squeeze investing theme, we are seeing technology help leapfrog infrastructure needs in many emerging markets. In India, mobile data is giving people access to the global economy in ways that was utterly impossible just a few years ago.
Just three years ago there were only about 125m broadband internet connections in India; by last November the number had reached 512m. New connections are growing at a rate of 16m per month, almost all on mobile phones. The average Indian phone user now consumes more mobile data than most Europeans.
Incredible economies of scale possible in the most populous nation on earth make for business models that are not feasible elsewhere.
So as not to limit the market to people who can afford smartphones, Jio also launched its own 4g feature-phone, the JioPhone, which it says is “effectively free”. Customers pay only a refundable deposit of 1,500 rupees ($21) for the device, with which they can use WhatsApp, watch YouTube and take pictures. As Mr Ambani said last year, for most users their Jio connection “is not only their pehla [first] phone but also their pehla radio and music player, pehla tv, pehla camera and pehla Internet”.
Which has lead to incredible adoption rates.
Data in India now cost less than in any other country. On average Jio’s users each download 11 gigabytes each month.
The opportunities here are staggering, but as we’ve seen pushback on globalization in much of the developed world, so too is India looking to protect is domestic companies from foreign competition. Draft rules revealed last July would require internet firms to store data exclusively in India. Another set of rules that went live last October require financial firms to store data locally, too. On December 26th India passed rules that hit hard at Amazon (AMZN) and Walmart (WMT), which dominate e-commerce there, preventing them from owning inventory in an attempt to protect local digital and traditional retailers.
Investors are well served to look beyond just the U.S. economy which is facing growth headwinds from slowing population growth, aging demographics and enormous debt loads with a mountain of unfunded liabilities across pensions and Social Security. In India, a country with a massive population that is relatively young and with productivity levels well below those of developed economies, small improvements can generate enormous returns for both its citizens and investors.
It’s not only the pace of the smartphone market that is slowing here in the US, so is the rate at which we are downloading apps even though Apple’s App Store and Google Play remain dominant platforms. A new report shows that China, India, Brazil, and Indonesia are the driving force behind app downloads and app-related revenue growth, which likely reflects the deployment of 4G networks and the adoption of smartphones. No wonder Apple is keen on cracking China and India. To us, this is our Rise of the New Middle-class investing theme intermingling with our Digital Lifestyle theme.
Global app downloads topped 194 billion in 2018, up 35 percent from 2016, according to App Annie’s annual “State of Mobile 2019” report released today. Consumer spending across app stores was up 75 percent to reach $101 billion. The report, which analyzes trends across iOS, Android and the third-party Android stores in China combined, follows the company’s earlier report released at year-end, which looked at downloads and spending across just iOS and Google Play.
According to the “State of Mobile” report, China accounted for nearly 50 percent of total downloads in 2018 across iOS and the third-party stores, despite the slowdown related to a nine-month game license freeze in the country. China also accounted for nearly 40 percent of consumer spending in 2018.
Emerging markets played a role in fueling downloads, as well, accounting for three out of the top five markets for downloads (India, Brazil and Indonesia). Download growth in the U.S., meanwhile, has slowed.
Developing markets played little role in consumer spend, however. Instead, the countries contributing the most on that front were (in order): China, the U.S., Japan, South Korea and the U.K.
It found that Chinese mobile gaming giant Tencent was the global leader for overall revenue across iOS and Android, not counting the third-party Android app stores. It was also the leader in game revenue. Tencent topped the non-game app chart for 2018, too, with its Tencent Video app clocking in at No. 3.
Even though new smartphone subscriptions in the U.S. market are slowing dramatically as demand matures, becoming increasingly reliant on replacement demand, tailwinds associated with our New Global Middle-Class investing theme explain why Apple CEO Tim Cook is so keen on breaking into India in a meaningful way. A new report from Cisco Systems forecasts smartphone growth in India to grow by 425 million users over the 2017-2022 period – roughly 180% of the U.S. smartphone subscriber base in the US this year. This growth will not only drive tailwinds for our Digital Lifestyle theme but also place demands on existing infrastructure that should drive a spending tailwind for our Digital Infrastructure one as well.
The number of smartphone users is expected to double to 829 million by 2022 from 404.1 million in 2017, projects a new Cisco report.This proliferation of smart devices will propel India’s per capita data consumption to nearly 14 gigabytes (GB) by 2022 from 2.4 GB in 2017, according to Cisco’s latest “Visual Networking Index (VNI)” report.“By 2022, the smartphone data consumption will increase by five time in India — which proves the dominance of smartphones as the communications hub for social media, video consumption, communications, and business applications, as well as traditional voice,” Sanjay Kaul, President, Asia-Pacific and Japan, Service Provider Business, Cisco, said in a statement on Monday.
Key predictions for 2022 (India)
· In India, there will be 840 million total Internet users (60% of the population) by 2022, up from 357 million (27% of the population) in 2017.
· In India, there will be 2.2 billion networked devices by 2022, up from 1.6 billion in 2017.
· In India, Smartphones will account for 38% (829.0 million) of all networked devices by 2022, compared to 26% (404.1 million) in 2017, (15.5% CAGR).
· In India, Smartphones will average 17.5 GB per month, up from 3.5 GB in 2017.
· India’s IP traffic grew 53% in 2017 and reached 3.3 Exabytes per month in 2017, up from 2.1 Exabytes per month in 2016.
· In India, IP traffic reached 2.4 Gigabytes per capita in 2017, up from 1.6 Gigabytes per capita in 2016. Per capita Consumption will reach 13.9 GB by 2022.
· In India, Internet video traffic grew 73% in 2017 and reach 13.5 Exabytes per month by 2022, up from 1.5 Exabytes per month in 2017. This account for 77% of all Internet traffic by 2022, up from 58% in 2017..
Amid the concerns of rising interest rates and what it may do in the near to medium term for Middle-class Squeeze consumers, new research from the Brookings Institute remind us of the positive economic force to be had with our Rise of the New Middle-class investing theme over the coming decade-plus. No wonder Apple CEO Tim Cook has been sharing upbeat thoughts about the coming demographic wave in India. He’s not alone, as other consumer product companies from Starbucks to Mondelez International and Proctor & Gamble are all focused on the sales and profits to be had from meeting this expected demand surge.
According to research from the Brookings Institution, more than half of the planet can now be considered “middle class” or “rich.” It is estimated that some 48 percent of the world’s population earns between $11 and $110 per day in PPP-adjusted dollars—a standard definition of the middle class using absolute (rather than relative) cut-offs—while another 2 percent earns more than $110 per day. According to projections and measures, the middle class will reach 4 billion people worldwide by the end of 2020 and 5.3 billion by 2030. This expansion has been driven by two phenomena: a steep decline in poverty around the world since the 1980s and rising household incomes in Asia.
There should be reasons to cheer this global “tipping” point. For the first time in recorded history, the majority of the world’s population will not consist of impoverished peasants or workers but of wage-earners who can afford to buy cellphones, washing machines and televisions, to go out to restaurants and theaters, and to take vacations with their families.
A growing middle class is supposed to be good for society. Their consumerism is supposed to boost global production of durable goods and make businesses more efficient and innovative in targeting these new customers. The global middle class is also committed to the education of their children. The middle class is more entrepreneurial than either the rich or the poor, and it demands more transparency from policymakers and tolerates less corruption. Because the middle class does not owe its wealth to privileges granted by the state, its members are more likely to support protections for property rights, as well as greater access and representation in decision-making.
We have another confirming data point that India is poised to become one of the key economies when it comes to driving global growth. The underlying reason ties with the other data points that point to this – India’s expanding middle-class, which will spur demand for a variety of goods and service. And yes, India and its evolving demographics is one of the geographies associated with our Rise of the New Middle Class investing theme.
Longer-term, it also appears it could be a meaningful driver when it comes to the adoption of alternative energies that are a part of our Clean Living investing theme at the expense of oil. Something to watch in terms of the adoption curve for electricity, solar, wind and other alternatives as they continue to move down the cost curve. We’ll also be watching for the adoption of other aspects of our Clean Living investing theme – food, snacks, beverages, and other products – as that middle-class continues to swell and the accompanying increase in disposable income opens numerous doors for consumers in India.
India is set to overtake China as the biggest source of growth for oil demand by 2024, according to a forecast announced Monday by research and consultancy group Wood Mackenzie.The country’s oil demand is set to increase by 3.5 billion barrels per day from 2017 to 2035, which will account for a third of global oil demand growth. India’s expanding middle class will be a key factor, as well as its growing need for mobility, according to Wood Mackenzie.
On the other hand, China — currently the second-largest oil consumer in the world — may soon need less oil. In 2017, it overtook the U.S. as the biggest importer of crude oil, but it’s set to see a decline in oil demand growth from 2024 to 2035, Wood Mackenzie Research Director Sushant Gupta told CNBC.That’s due to two trends: Alternative energy sources such as electricity and natural gas are displacing the need for gasoline and diesel. And, a more efficient freight system and truck fleet will also result in sluggish road diesel demand, Gupta said.
We can now add Ikea to the throes of companies that are targeting the growing middle-class in India. We’ve acknowledged for some time that market in India is one of the drivers behind our Rise of the New Middle Class investing theme, and the latest data from the International Monetary Fund finds India to be the world’s fastest-growing major economy in 2018. With a household furniture market that is expected to be worth $2.7 billion by 2022, odds are other companies like Walmart and Amazon will be attacking this market as they look to expand their presence in India.
Ikea has finally opened its first store in India on Thursday, targeting the country’s growing middle-class in an environment that Chief Executive Jesper Brodin has described as “more committed to progress.”
India presents businesses with one of the world’s largest consumer markets. Its 1.3 billion citizens means that it is the world’s second most populous country after China. But, gross domestic product (GDP) per capita remains less than a quarter that of its fellow Asian giant.
Nonetheless, India is expected by the International Monetary Fund (IMF) to be the world’s fastest-growing major economy in 2018. The country’s household furniture market is expected to be worth $2.7 billion by 2022, according to The Economist Intelligence Unit.
Indian consumers are unused to traveling to stores to buy self-assemble furniture, Reuters reported. Instead, furniture is usually delivered to customers fully built. To solve this problem, Ikea has set up a 150-strong in-house team to help customers put products together.
According to one analyst, Ikea’s latest venture into India is likely to be a success — and this is not just down to the country’s economic fundamentals. “With high real estate prices forcing more and more Indians to live in small apartments, Ikea’s minimalist and multi-purpose furniture will be expected to register strong demand,” Barsali Bhattacharyya, deputy lead companies analyst at The Economist Intelligence Unit, told CNBC via email Thursday.
Chicken and vegetarian variations of Ikea’s famous meatballs are sold in the Hyderabad store to account for India’s prevailing religious beliefs.
As we saw this past Prime Day 2018, Amazon is targeting international expansion of its Prime services. It’s also doing the same with its acquisition of online pharmacy as PillPack it looks to disrupt the pharmacy market, an event that we here at Tematica are anxiously awaiting. As Amazon builds on PillPack that acquisition should pave the way for Amazon feeling the benefits of our Aging of the Population tailwind to a much greater degree. Now with Amazon reportedly looking to acquire MedPlus, an Indian pharmacy chain, it looks to leverage both of these strategies — targeting international markets and disrupting the pharmacy market — which would serve to expand its footing inside our New Middle Class investing theme as well as our Aging of the Population one.
Amazon is reportedly engaged in deal talks about acquiring MedPlus, the Indian pharmacy chain.According to Reuters, citing FactorDaily, the Indian news website, sources said the talks are in the early stages. MedPlus Health Services operates more than 1,500 pharmacies in India, and also operates lab testing centers and has a surgical equipment distribution unit. “We do not comment on what we may do or may not do in the future,” an Amazon spokesperson told Reuters.In late June, Amazon announced it had inked a deal to acquire PillPack, the pharmacy focused on people in the U.S. who take multiple daily prescriptions.
Month to month economic and industry data can fluctuate, which is why we look at the data over a longer term. While passenger air traffic spiked in February, we see the annual growth rate of more than 20% over the last several years reflecting the growing economy and rising disposable income that are drivers of our Rise of the New Middle Class investing theme. In addition to incremental spending on travel, other areas benefitting from this theme include leisure spending, housing and furnishings, premium branded apparel, higher end autos, restaurants and connected devices. In short, those devices and activities that denote some degree of status have been achieved.
Even though Goldman Sachs (GS) lowered its real gross domestic product (GDP) forecast on India for the year to March 2019 to 7.6% from 8%, the level of growth is far stronger than anything expected in the US, a country that sees more signs of our Middle-Class Squeeze investing theme.
Passenger air traffic in India grew at the fastest pace in 13 months in February, even as fears mount over demand weakening due to rising air fares.
The number of passengers flown last month jumped almost 24% on-year to 10.7 million, according to government data.Air travel in India traditionally records a spurt from October through March, rebounding from a lean period in the previous months.
The country’s air travel has grown at an annual pace of more than 20% in the past few years as rising incomes and the advent of no-frills carriers prompted more people to shun trains for long-distance travel.
The south Asian nation is already the third-largest aviation market behind the U.S. and China with domestic traffic of more than 100 million passengers.