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Indian companies with pricing power stand to benefit with rising inflation this fiscal, says a Morgan Stanley report.
These are companies that are able to pass on all their costs to the end consumer and command a premium over their peers when it came to the selling price of their products or services.
Consumer companies would focus on rural India more than ever as consumption habits for rural and urban India seem to be converging.
Morgan Stanley's survey of 2008 Indian households cutting across various socioeconomic classes across 16 large medium and small cities and eight States, shows that the savings rate of 15 per cent (as against the estimated national average of 22.7 per cent) will be eroded by 180 basis points due to inflation.
Out of this, grocery items will contribute 42 basis points while the rest would be due to discretionary items such as home appliances, education, personal care products and utility payments.
Household expenses
Households had adjusted their expenditure on discretionary items in the last 12 months to counter food inflation. But they will cut down on food items such as fruits, vegetables, beverages, meat and chicken, but will continue to sustain their spends on medical, education lifestyle and transport.
Urban households are likely to cut on fruit and vegetables, while rural households are likely to cut on utility services, telecommunications, electricity, domestic help, and the like.
To manage rising inflation, Indian households are likely to cut savings. And lower savings would mean even lower investments in the next 12 months.
Among the households surveyed, urban consumers increased their proportion of expenditure on clothing, accessories, vacation, recreation and entertainment while the rural consumer also increased his spends on vacation, recreation and entertainment
The survey excluded households earning income from agricultural labour and the urban poor-those living in slums.
Retail Companies
Morgan Stanley has said that retail companies are a must for long-term portfolios, while analysing the impact of rising inflation. Seventy per cent of India still buys from their local grocer; modern retail formats have a long way to go and hence have immense potential to grow their businesses.
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