Do it yourself

For many weeks, global markets have been behaving in a very desynchronized manner. Non-congruence is conspicuous even in the behavior of the same investor/trader operating in different market segments, e.g., equities, bonds, commodities, currencies, cryptocurrencies, etc.

For example, until a month ago an investor with a balanced 50:50 debt-equity asset allocation invested in bonds as if a soft landing was imminent leading to a series of policy rate cuts over the 12-15 months. The same investor invested in equities believing that earnings growth would surpass the estimates and stocks of top technology companies would continue with their dream run. The investor was content investing in USD assets assuming green greenback would strengthen and at the same time he was buying bitcoins expecting the demise of the extant monetary system by independent crypto or digital currencies.

Last week in the US, equities reached their all-time high levels as if all is well in political, geopolitical, climate, economic, and financial spheres. It felt that the Fed was about to begin a sharp rate cycle, earnings growth had rebounded, Sino-US relations had normalized, the Gaza ceasefire had been announced, and El Nino had ended. However, across the street, the bond market was selling off as if prices were going out of control forcing the Fed to push the rate cuts to 2025. Back street, the bullion market announced that a recession was imminent. Across the Ocean, crude prices were rising as if a war was imminent with Iran threatening to escalate. In dark streets, crypto traders were laughing at conventional investors/traders rushing to bullion markets to hedge against recessionary weakness in USD.

Back home, last week equity indices reached their all-time high. Nifty Small Cap 100 gained over 7%. Commodity stocks rallied as if a bullish commodities cycle was imminent. Ignoring RBI's concerns over prices and credit, bond prices corrected only marginally. No one bothered to care about political manifestoes which are promising fiscal profligacy of gigantic proportion. USDINR appreciated marginally ruling out any pressure on the current account and balance of payment due to the sharp spike in energy & gold prices (two major imports of India) and FPI flow reversal due to the narrowing yield differential between India and developed market yields. People are also rushing to buy Silver (up 10% last week) to make some quick gains.

One of the largest asset management companies is running equities weight close to the lowest permissible in their balanced fund. It has also restricted flows to their smallcap fund. The top fund manager at this AMC is one of the most respectable names in the industry. Considering that the Smallcap index was up 7% last week against the 0.8% rise in Nifty, it seems, no one is listening to his sane advice.

We have all heard the story of an elephant and six blind men. It goes like this.

Once upon a time, there lived six blind men in a village. One day the villagers told them, "Hey, there is an elephant in the village today."

They had no idea what an elephant is. They decided, "Even though we would not be able to see it, let us go and feel it anyway." All of them went where the elephant was. Every one of them touched the elephant.

"Hey, the elephant is a pillar," said the first man who touched his leg.

"Oh, no! it is like a rope," said the second man who touched the tail.

"Oh, no! it is like a thick branch of a tree," said the third man who touched the trunk of the elephant.

"It is like a big hand fan" said the fourth man who touched the ear of the elephant.

"It is like a huge wall," said the fifth man who touched the belly of the elephant.

"It is like a solid pipe," Said the sixth man who touched the elephant's tusk.

They began to argue about the elephant and every one of them insisted that he was right. A wise man was passing by and he saw this. He stopped and asked them, "What is the matter?" They said, "We cannot agree on what the elephant is like." Each one of them told what he thought the elephant was like. The wise man calmly explained to them, "All of you are right. The reason every one of you is telling it differently is because each one of you touched a different part of the elephant. So, the elephant has all those features that you all said."

"Oh!" everyone said. There was no more fight. They felt happy that they were all right.

The story's moral is that there may be some truth to what someone says. Sometimes we can see that truth and sometimes not because they may have different perspectives which we may not agree to.

But I am witnessing a different phenomenon. No six blindfolded men are feeling different parts of an elephant this time. It is only one person who sees different parts of an elephant with open eyes and is not able to tell that it is an elephant.

The strict stand of the Supreme Court of India in the case of misleading advertisements and false claims by the Patanjali Ayurveda is important. A clear verdict in this case and guidance to the State for framing & enforcing stricter norms for alternative treatment methods, especially for mental and sexual health problems, is long overdue. Any person who has traveled long distances in Indian trains and roadways buses must be aware of how misleading advertisements and claims are used by unqualified, and often fraudulent, medical and spiritual (for lack of better word) practitioners to swindle the gullible common people. There are millions of cases of these practitioners causing irreparable, and often fatal, harm to unsuspecting patients.

The Supreme Court’s verdict, in this case, would be a timely reminder to the State and the people about fundamental duties prescribed under the Constitution (Article 51-A, inserted through the 42^nd Amendment), especially the duty to “Develop scientific temper, humanism and the spirit of inquiry and reform.” (Article 51A(h))

Considering the present state of affairs, creating awareness about developing a scientific temper; showing empathy towards fellow citizens; examining the information for fake & manipulative content; and implementing social reforms are critical for sustainability and growth.

I have been frequently writing about the misinformation campaign being run by several self-styled spiritual gurus, against the multinational corporations operating in India. I may reiterate what I have been saying in the defense of MNCs.

In the defense of MNCs

I am not a regular TV watcher. I have also reduced my social media interactions by almost 80% in the recent past. For my socioeconomic views and investment strategy, I am therefore completely reliant on what I see with my own eyes and feel with the weight of my wallet.

I had the opportunity to hear the promoters of Patanjali Ayurveda. They have always been critical of all MNC players in Indian markets and often claimed to be working actively to annihilate them. One of the promoters claimed that their commercial venture is a torchbearer of the larger Swadeshi (self-reliance) movement taking place in India. Once, he categorically stated his endeavor shall chase away all MNCs, like HUL, P&G, Colgate, etc.,  who have plundered wealth from Indian consumers for over a century. He alleged that these companies are plundering money from Indian consumers and taking it abroad to benefit their parent organizations.

Surprisingly, the government (which appears keen on MNCs investing in India by making India a better, easier, and safer place to invest and do business); various business and industry associations (who are duty bound to protect the interest of their members and ensure a level playing field); and a variety of other regulators and administrators, have made any murmur of concern over this.

Ostensibly, Patanjali marketing campaigns are overwhelmingly based on (a) an emotional appeal on grounds of patriotism and Swadeshi; and (b) materially better quality of Patanjali products as compared to the products of MNCs.

Insofar as the quality of products and use of "dangerous" chemicals etc. is concerned. I am not competent to comment on this subject. However, I do have an observation to share on the issue of plundering money from Indian consumers.

In my view, the owners of a corporate entity can get money from the entity only in two forms - dividends and return of capital. Return of capital in a normal course occurs only if the business is wound up (ignore buybacks etc. for a while).

·         An analysis of listed companies having 50% or higher foreign holdings suggests that foreigners own more shares in the companies popularly perceived to be "Indian" rather than those condemned as MNCs.

·         173 companies having over 50% foreign holding paid a total of Rs769bn as dividends for FY23. Out of this Rs551bn was paid to the foreign shareholders while Rs218bn was [aid to the Indian shareholders. These companies paid Rs825bn as salary and wages.

·         The top 10 companies popularly perceived to be MNCs paid a total of Rs203bn as dividends to foreign shareholders in FY23; whereas the top 10 companies popularly perceived to be Indian paid a dividend of Rs443bn to foreigners.

·         Against a dividend remittance of Rs203bn, top ten MNCs incurred Rs646bn as employee cost, which is paid predominantly to Indians. Besides, these MNCs sourced most of their raw material from India, got their products manufactured by Indian contractors (mostly SMEs), and created significant business opportunities for the people engaged in their local supply chain. Maruti alone would have supported hundreds of SMEs to build sizable businesses, employing millions.

·        
Many of these MNCs have put India on the global roadmap, in terms of quality of products, technology, innovation, and even export markets. For example, Maruti Suzuki has helped thousands of ancillary units (mostly in the SME space) to grow and register their presence in the global arena. HUL has cultivated many managers who have grown to become global leaders.

One must be alarmed if someone like Patanjali promoters express their intention to annihilate these MNCs. The Swadeshi champions may also note that if these companies decide to wind up their businesses, sell their assets, and take the money home, the outflow will be much larger than what would possibly they remit as dividends in the next 50 years. The consequent job losses would be catastrophic.

It would therefore be only appropriate that the State takes the lead from the Supreme Court verdict in the Patanjali case and explicitly announces its stance on this issue. 

In my view, the stock market outlook in India, in the short term of one year, is a function of the following seven factors:

FY23 was mostly a year of normalization. After two years of disruptions, uncertainty, and volatility, both the markets and the economy regained a semblance of normalcy in terms of the level of activity, trajectory of growth, direction, and future outlook.

Building on the momentum regained in FY23, the Indian economy and the markets made a steady move forward in the financial year FY24. The resilience of growth has been surprising, given the tighter money conditions and challenging external environment.

The global economy was also stable despite geopolitical and climate challenges. Global markets accordingly performed well. The sentiments remained mostly positive and supportive of risk.

The following are some of the highlights of the performance during FY24.

Equity Markets

Indian equity market was amongst the best-performing global markets. The benchmark Nifty yielded a return of ~29% (27% in USD terms), which was in line with the US markets (S&P500 +28%), but much higher than Europe (Stoxx600 +12%; DAX +18%).

Asian markets were mixed. Japanese equities were the top global performers (Nikkei255 +44%); South Korea (KOSPI +17%) did reasonably well; while China (Shanghai Composite -7%), Singapore (-14%) and Hong Kong (Hang Seng -19%) ended the year with major losses.

Broader markets at the center stage

The primary action was away from the benchmark Nifty. Broader markets sharply outperformed the benchmark in one of their best years in the past decade. Nifty Smallcap 100 (+70%) and Nifty Midcap 100 (+60%) led the market gains.

The overall market cap was higher by 50% yoy against Nifty50 gaining 29% (81% of total market cap) and Nifty500 gaining 39% (91% of total market cap). Some part of the gap could be explained by new listings, but most of this is attributable to the massive outperformance of smallcap stocks.

Sector-wise, Realty, PSU Banks, Auto, Energy, Infra, Pharma and Metal stocks were top outperformers. Financials (ex PSU Banks), FMCG, IT Services were notable underperformers. Micro-sector-wise, renewable energy stocks were outstanding while chemicals were the worst performers.

Nifty consistent performer; broader markets more volatile

The benchmark Nifty50 yielded positive month-on-month returns for nine out of twelve months in FY24. However, the market breadth was negative in five out of twelve months implying much higher volatility in the broader markets.

Institutional flows positive, Nifty-Flow correlation breaks in 4QFY24

Institutional flows were materially positive for FY24. Net domestic and foreign flows in the secondary equity market amounted to Rs3609bn. Foreign Portfolio Investors (FPIs) were net buyers of Rs1510bn while domestic institutions pumped in Rs2099bn. FPIs were net sellers in four out of twelve months. The nifty-institutional flow correlation however completely broke down in 4QFY24 when Nifty gained less than 3% despite Rs1042bn of net institutional flows.

Debt and Currency Markets

Indian debt and currency markets were mostly stable during FY24, showing little volatility. RBI did not make any changes to the policy rates.

The benchmark 10-year treasury bond yields eased to 7.05% from 7.3% a year earlier. USDINR weakened 1.8% to 83.37 from 81.87 a year earlier. Lending and term deposit rates were higher by up to 50bps. The yield curve shifted lower and flattened completely.

The RBI continued with its “withdrawal of accommodation” policy stance. The liquidity position therefore remained tight for most of the year. The credit growth outstripped the deposit growth. Overnight and call money rates were accordingly higher by 70-90bps.

Economic conditions

Overall GDP growth was consistent and strong for the first three-quarters of FY24. Beating all forecasts and consensus estimates, FY24 GDP is poised to show a growth of over 7% yoy. FY25 GDP growth estimates have accordingly been upgraded.

·         CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% (except for a short spike in 1QFY24). Core inflation eased below 4% in 4QFY24.

·         Real rates have mostly remained in positive territory during FY24.

·         Private consumption, household savings, and government consumption expenditure were some of the distinct areas of slowdown.

·         Project awarding activity witnessed a marked slowdown in 2HFY24.

·         Rural markets gave mixed signals of demand recovery. For example, farm tractor sales declined again in 2HFY24, while 2w-3w sales staged some recovery. FMCG companies’ commentary remained mostly cautious about the consumption demand recovery in rural areas.

·         External conditions were broadly good. The current account balance was manageable at 1.2% of GDP during 9MFY24, supported mostly by services and remittances. Merchandise trade balance remained negative.

·         Electronics (6.5% of total exports) and Pharmaceutical (6.3% of total exports) registered good growth, while traditional petroleum products, gems and jewelry, and textiles recorded materially negative growth during 9MFY24.

·         Net FDI flows continued to decline for the third consecutive year.

Commodities

FY24 was a mixed year for commodities. Precious metals (Gold +15%) and crude oil (Brent 10%) recorded decent gains, while industrial metals (Nickel -30%, Zinc -17%, Steel -19%), natural gas (-21%), coal (-28%), and agri commodities (Wheat -19%, Soy -21%) ended the year with strong losses.

Crypto shine

Cryptocurrencies like Bitcoin staged a massive recovery during FY24, ending the year at all-time high levels. The newest asset category gained a wider acceptance during the year from market participants and regulators.

A new study by the World Inequality Lab highlighted one of the most obvious facts, i.e., the income and wealth inequalities in India have been rising and are now worse than the colonial period. The study highlights that “Inequality declined post-independence till the early 1980s, after which it began rising and has skyrocketed since the early 2000s. Trends of top income and wealth shares track each other over the entire period of the study. Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, the top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world, higher than even South Africa, Brazil and the US.”

The study suggests that “A restructuring of the tax code to account for both income and wealth, and broad-based public investments in health, education and nutrition are needed to enable the average Indian, and not just the elites, to meaningfully benefit from the ongoing wave of globalization. Besides serving as a tool to fight inequality, a “super tax” of 2% on the net wealth of the 167 wealthiest families in 2022-23 would yield 0.5% of national income in revenues and create valuable fiscal space to facilitate such investments.”

This is probably not a good time to publish such reports which highlight any deficiencies in India's governance model. The opposition parties use these reports as a tool to attack the government. The ruling party rejects the finding as malicious propaganda to malign the image of the country and its government - everyone misses the point, i.e., there may be some serious flaws in the socio-economic development model used in the past five decades by various governments. These flaws, on the one hand, may have resulted in a widening of socioeconomic disparities, and on the other hand, might have constricted the growth and development of the country.

Bloomberg columnist Andy Mukherjee opined “‘Billionaire Raj’ Is Pushing India Toward Autocracy”. A known critic of the establishment, Mukherjee extorted the voters to ask questions. He wrote, “The super-rich have opened their wallets to Modi, and income inequality has soared over the past decade. With an election coming, ordinary voters need to ask, ‘What’s in it for us?’”

My view is that India never had democracy. We have always been a feudal society. In the post-independence era, democracy has mostly been a tool to capture feudal power. Since the late 1970s most parties have used the façade of socialism to become feudal (e.g., BSP, SP, RJD, and DMK, TDP, TMC, BRS, AAP, etc.) BJP also adopted Gandhian Socialism as its guiding philosophy briefly. The longest-ruling Congress party had turned feudal in the late 1960s. Parties like SAD, PDP, NC, NCP, YSRCP, etc., have been blatantly feudal ab initio.

We, the people of India, have always celebrated the feudal powers of our leaders. The poor and oppressed admired and vehemently defended, for example, the diamond jewelry of Mayawati, the Luxury cars of Mulayam and Lalu, the riches of the Badal, Jayalalitha & Karunanidhi clan, and the variety of designer attires of our prime minister.

The unemployed, ill, starving, and oppressed take pride in some Indians making a place in the Forbes list of global rich, spending billions on their children's weddings, and visiting temples to ask for more wealth from God.

They also feel empowered in queueing up for hours to shower rose petals on their leaders’ retinue of luxury cars in meaningless pretentious roadshows.

They celebrate when patriarchs of the parties they support, “nominate” their favorites to public offices. No one wonders that they have been given no right to elect their representatives or leaders. Feudal parties impose people of their choice as the parliament, assembly, and local body candidates on them. The set of people who would be PM, CM, Mayor, minister, governor, etc., is pre-determined by patriarchs irrespective of who is elected or defeated in the elections. Nobody is interested in discussing or following any ideologies.

The people who suffer the most do not seek accountability from their leaders. On the contrary, the random guys daring to ask questions are termed seditious by the same people. No one dares to challenge the feudal lords.

The debate should therefore be on the core issue – “Whether we should end the pretense and choose between a true representative democracy or a proper Monarchy?”

My vote is for a true democracy, where people choose their representatives (not merely vote for the candidates imposed on them by some random guys sitting in Delhi party office).

In the past few days, three noteworthy events took place in the global financial markets. These events highlight the policymakers’ dilemma and the uncertainty faced by the financial markets.

First, the Bank of Japan changed its policy stance of “negative interest rates” ending its massive decade-long monetary stimulus exercise to a virtual close. Addressing the press after the policy decision, Governor Kazua Ueda emphasized that BoJ has “reverted to a normal monetary policy targeting short-term interest rates as with other central banks” He also added that “if trend inflation heightens a bit more, that may lead to an increase in short-term rates”.

An overwhelming market consensus now believes that BoJ will hike the policy rates from the present 0-0.1% to 1% in the next year. However, given the massive debt accumulated over the past two decades, Japan may not afford any rate hike beyond 1%.

USDJPY (151.38) is now at its lowest level since 1990.

Second, the Swiss National Bank (SNB) cut its policy rates by 25bps, its first rate cut in nine years. The other European central banks, viz., Norwegian Central Bank (Norges Bank) and Bank of England however decided to maintain the status quo. The decision of SNB was unexpected as the market consensus favored a status quo. SNB did not commit to any further cuts.

This ‘surprise’ move by SNB led the Swiss Franc (USDCHF) and Swiss treasuries to tumble down to their lowest level in eight months.

Third, the US Federal Reserve maintained the status quo on its policy rates, holding the policy rates in a range of 5.25%-5.5%, as expected by the market consensus. The market expectations are now veering around 0-3 cuts this year, against the expectations of 6-8 cuts four months ago. The ‘no-cut’ this year is gaining more support every day.

In the post-meeting press interaction, Fed Chairman Jerome Powell was as non-committal as one could be, leaving the markets confused and speculating. Powell said, “despite high interest rates, economic growth has remained relatively strong and inflation has materially lowered over the past year. Consequently, the FOMC raised its growth and inflation expectations for 2024”. Powell added that “there is still plenty of progress to be made on meeting its 2% inflation target” and hence “the path forward is uncertain.”

After reading the three policy statements carefully, my understanding of the situation is as follows:

·         The central banks are increasingly confident of avoiding any deeper recession in the short term at least (1-2 years). Even the “soft-landing” (shallow recession) appears to be slowly becoming a bear case. The base case is low growth for a longer period.

·         The central bankers are inclined to accept 2-4% inflation as normal. This suits everyone. The governments that have accumulated massive debt over the past decade would be happy if the real rates just stayed negative for long. Savers are happy to earn higher nominal rates on their savings. Corporations are happy to borrow more at negative real rates, buy back their equity, and enhance the market value of their businesses with low earnings growth. We may also see a relative currency depreciation of countries with high external debt (e.g., the US) as a tool for debt management.

·         The popular narrative revolves around “resilient growth”, “sticky inflation” and “calibrated easing”. None seems to be positioned for a Fed rate hike presently. Though the probability may be negligible presently, further strengthening of growth momentum, a strong El Nino, and/or worsening of geopolitical conditions in the Middle East Asia and Central Europe fueling inflation could enhance this probability.

In the Indian context, the RBI has been on pause for over a year now. This is despite inflation consistently remaining close to above the upper bound of its tolerance range of 4-6%; growth surpassing its mostly optimistic estimates; distinct signs of heating in certain pockets of the credit market (especially credit card outstandings and unsecured NBFC lending); and the regulators frequently expressing concerns over excesses in financial markets. RBI has chosen to use tools like withdrawing liquidity through open market operations and nudging NBFCs and banks through advisories to regulate the credit markets.

The popular market narrative in India also revolves around the timing of the cut rather than “cut or hike”. For the financial sector, it means “Margin pressure”, “slower growth”, and “pressure on asset quality”.

RBI’s pause hinders the lenders’ ability to hike the lending rates when the cost of funds is rising due to tighter liquidity and stricter norms. The government has hiked the rates on small savings and EPF. This pressures banks’ cost of deposits. Stricter lending norms might adversely impact the product mix of lenders as the weightage of high-margin personal and unsecured loans reduces. Pressure on low-cost CASA rises as the savers move to high-yield options like corporate bonds, credit funds, and even equities.

In my view, investors should be wary of the free advice of deep value in the banking sector. The large banks are underperforming for a valid reason and smaller banks may have completed their re-rating journey.

The financial market regulators (RBI and SEBI) have repeatedly cautioned investors and intermediaries in the past few months. However, regulators’ cautions mostly went unheeded as both intermediaries and investors continued to ignore fundamentals, moved with the momentum, and exceeded their limits – regulatory and financial. Consequently, the regulators have begun affirmative action. Following some preventive and corrective actions the regulators took, there is palpable panic amongst the market participants.

There are a lot of queries, especially from small investors, who are usually gullible and easily get misled by the manipulative tactics used by the devious operators and end up buying junk stocks at high prices. The queries usually include – “should I buy more to average my cost?”; “it’s already down 40% from high, how much more could it fall?”; “The stock is falling daily, should I sell it now and buy lower?”

I do not have any specific answers to these queries. However, from my experience of over three decades, and having seen multiple instances of such manipulative euphoria and subsequent meltdown, I would say as follows:

Cost Averaging

Cost averaging in an individual stock is not a prudent idea, especially for small investors with limited resources. Investors need to aim to earn a return on their total investment. To maximize their return, they need to decide at the time of investing, which investment has the best return potential. If it is one of the stocks they are already holding, they should add to that holding. If it is some other investment option, they should invest in such a better option. Buying more of an underperforming stock if there are better options available would be a bad strategy. It might result in the dissipation of scarce resources (money), compounding of losses, and missing good opportunities.

Catching a falling knife

Not long ago, Future Retail Limited (FRL) was a famous company. The promoter of the company was considered a genius. He pioneered the organized retail business in India. Learning from global retail majors like Walmart (USA) and Asda (UK), he built a strong business in India. However, failure to manage growth and excessive debt created problems for FRL and several other group companies, eventually leading to insolvency. The problems for the group had started after the global financial crisis, but it survived for a few years through selling of assets and business restructuring. Covid-19 hit the company hard and it could never recover from that shock.

Post restructuring of the group in 2016, FRL hit a high of ~Rs634 in November 2017 and has been on a steady decline since then. At the time of Covid-19 breakout (February 2020) the stock of FRL was trading close to Rs350.

Tracking the stock movement from the high of 2017, we get this.

·         The Stock price fell 22% (635-493) in one year from November 2017 to November 2018.

·         If one got tempted to buy it in November 2018, it was down another 33% in the next year (November 2018-November 2019) from 493 to 330.

·         If one averaged it in 2019, it was down another 79% in the next year, from Rs 330 to Rs68.

·         In November 2020, if you thought that the stock is down 90 from its 2017 highs, and how much more it could fall, it was down another 29% in the next year to Rs48.

·         If one believed that it is now available at a dirt-cheap price and bought it, he would have lost 92% of his investment in the next year as the stock touched Rs4 on November 22.

·         If in November 2022, you thought there is not much to lose in this, the investments made in November 2022 are down by 50% as the current stock price is ~Rs2.

·         The investment made at this “lottery” price can still potentially lose 50% to 100%.

FRL is only one example. There are hundreds of stocks that were very popular at one point in time, fell 90-99.9% from their euphoric highs, and never recovered.

Therefore, before cost averaging, investors must understand that a stock down 90% from its high, is a stock that has fallen 25% from its immediate previous price eight consecutive times (100-75-56-42-32-24-18-13-10). If at any point of this journey, you thought that it has already fallen so much, how much more this can fall – the answer is it can still fall another 90-100%.

Selling to buy lower

An investor needs to understand his/her limitations. Most investors do not possess the skills required to be a successful trader in the market. So, it is better to avoid trying these kinds of adventures. If you are comfortable with the fundamentals of the company, ignore day-to-day price movements and stay put. If you are not comfortable with the fundamentals of the company, ignore day to day price movements and exit at once.

 The National Sample Survey Office (NSSO) released the results of the latest Household Consumption Expenditure Survey a few days ago. The report highlights some interesting trends in household consumption patterns over the last two decades. The changes in the rural consumption patterns are particularly noteworthy.

Some of the key highlights of the survey could be listed as follows:

Consumption levels

·         The average monthly per capita consumption expenditure (MPCE) in rural areas is Rs3773 while in urban areas it is about 71% higher at Rs6459.

·         Rural population spends 46% on food and 54% on non-food items. While in urban India this ratio is 39% and 61%.

Consumption disparities

·         There is a significant regional skew in both rural and urban expenditure levels. Sikkim has the largest MPCE (Rs7731 for rural and Rs12105 for urban consumers) while Chhattisgarh has the lowest MPCE (Rs2466 for rural and Rs4483 for urban consumers). Delhi, Goa, Kerala, Punjab, Tamil Nadu are some notable states with above average MPCE.  Assam, Bihar, Gujarat, Jharkhand, Odisha, Uttar Pradesh, West Bengal are some notable states with below average MPCE.

·         SC/ST have below average MPCE, while OBC’s consumption levels are close to national average.

·         Rural-Consumption gap has reduced over the past two decades, but it is still quite high. In FY05 Rural MPCE (Rs579) was 91% lower than the urban MPCE (Rs1105). In 2022-2023, the gap has reduced to 71% (Rs3773 vs Rs6459)

·         Overall, the top 5% of rural population (MPCE Rs10501) is consuming 7.6x more than the bottom 5% (MPCE Rs1373). The skew is much higher in urban India where the top 5% population (MPCE Rs20824) spends 10.4x more than the bottom 5% (MPCE Rs 2001). MPCE of the top 5% in urban areas (Rs20824) is almost 2x as compared to the MPCE of top 5% in rural area (MPCE Rs10501).

·         Not only between the top 5% and bottom 5%; the gap is significant between the top 5% and the next 5%. In urban area, this gap is 68% (Rs20824 vs Rs12399) while in rural areas this gap is 58% (Rs10501 vs Rs6638)

Consumption patterns

·         Beverages, Refreshments, and Processed Food is the largest item in urban and rural consumption baskets. Urban consumers spend 10.64% of MPCE on this while rural consumers spend 9.64% of MPCE on this. Dairy products are the second largest consumption item in both rural (8.33%) and urban (7.22%) baskets. Conveyance and medical expenses come at a close third and fourth.

·         Since FY05, rural India has seen a significant rise in expenditure on Fruits, beverages & processed foods, hospital expenses, conveyance, entertainment, and durable goods. The share of cereals, sugar & salts, fuel & light, clothing and footwear have seen a significant fall. Education and toiletries are two notable items that have not seen much change in share in MPCE.

·        In the case of the urban consumption basket, the trends are similar, except that spend on education has fallen and expenditure on rent has seen notable increase.