During a trip to India, visits to a shopping mall and the basement of a jewelry store provide unique perspectives on the Indian economy and consumer experience.


John Natale: I’m John Natale, and you are listening to the podcast, On the Trading Desk®.

This conversation features highlights from the publication, Market Traveler, created by Wells Fargo Asset Management.

In each edition of Market Traveler, our investment teams take readers “on location” to destinations across the globe. Their mission: Get a first-hand look at regional industries, economies, governments, and—as we’ll discuss in today’s episode—the basement of a major jewelry retailer in India.

Yes, today’s topic is India. This is Part 1 of a two-part series, and we’ll speak with Alison Shimada, Portfolio Manager, and Mandeep Manihani, Analyst, from the SF Global Emerging Markets Equity Team.

Alison, thank you for being On the Trading Desk®.

Alison Shimada: Thank you very much, John.

John: And thank you for joining the program, Mandeep.

Mandeep Manihani: Thanks, John. It’s a pleasure.

John: Alright, well, let’s get started. Alison and Mandeep, in Market Traveler, you suggest looking past the surface-level impressions of India’s consumer economy. The idea being, if you dig deeper than the latest report on personal consumption, you can understand what’s really driving India’s economy.

Alison, for you, digging deeper involved going on an undercover trip of sorts to the shopping mall. You call it a “store check”. What kind of unique perspective can you gain when you immerse yourself in the consumer experience?

Alison: John, I think that some of the benefits of seeing stores and businesses in action is that you really see how promotions are set up with the merchandise quality and how it’s actually displayed in the store.

The level of staffing, for instance, so do they have enough people there to service all the customers? What the level of demand is from the customer side—in other words, does it seem like the store is actually popular? The brand is popular? So there’s a lot of things you can actually check.

It kind of all comes together in an overall impression of how businesses are actually doing. And I think that the one thing about seeing the physical store space and the products is the fact that in emerging markets, like in any economy, I think that spending is aspirational.

And it’s another question as to whether local consumers are interested in foreign brands, local brands, how they meld those together with the combination of those types of brands are in a particular location.

So it’s a lot of good people watching and it’s also just seeing merchandising and products in action.

John: I can totally see that. That’s an interesting concept. You noticed something in particular when you visited a shopping mall. While you were gauging the temperature of India’s consumer activity, you actually had an “ah-ha” moment of sorts and it was all about temperature? Can you take us there?

Alison: Sure. It’s actually literally about temperature.

I really feel that in countries—I think Asia overall is a good example of this—where the climate is quite hot most of the year, people need a place to go other than their own homes where they can relax and spend time with family in an air-conditioned environment, and the shopping malls do provide that.

The minute you step inside a shopping mall, you feel at ease and it’s more comfortable, so I think people go there for the air conditioning. That’s the reason why I think you’ll see shopping malls actually, maybe, proliferate in emerging markets countries and/or they’ll certainly be in vogue for some time.

I think it also provides entertainment. They might have movie theaters there, food courts are very popular, also, some area for kids to play, and also buy two shirts while you’re there. So I think that is a multitude of reasons to go. When I went into the shopping mall in India, it was a very interesting real-life observation of what consumption is like in India.

John: Very cool. Thanks for elaborating on that. Mandeep, let’s switch gears and take listeners from an Indian shopping mall to the halls of a major conference that you attended, where investors, such as yourself, learned about the public policy landscape in India. Very important component. So I’ll ask you a two-part question: What has India’s government done well, thus far? And what do they still need to tackle?

Mandeep: Thanks, John. The topic of public policy was very timely since the Modi government was just up for second reelection and that was a massive mandate. So the Modi government has focused on two key things in its first term.

The first was to ensure access to basic services for the broader population. Mr. Modi’s team did a commendable job with sanitation, connecting villages with roads, and electricity. We believe that had an important role in his reelection victory, which was actually a surprise to many economists.

The second thing that the government did well was to take some bold steps. Demonetization was the boldest and GST [Good and Services Tax] was also implemented, even though it still has some teething issues. Both these steps helped the Indian economy accelerate its transition from a more predominantly informal economy towards a more formal one.

Now on the economy side, there have been some challenges, given the very deep correction in the economic growth. Economic growth over the last two quarters has been below 6%, after a really long time. So one of the core areas to focus on would be the NBFC [Non Banking Financial Companies] crisis. And while the government has announced some steps since our trip to encourage banks to lend to NBFCs, our key takeaway from the trip was that we should not expect a bailout of the troubling NBFCs.

The Modi government has focused on longer-term structural objectives for the economy. In fact, India has been in the news recently for sharply cutting its corporate tax rates to attract investments. So while a positive step, we still believe that the government needs to follow it up with other reforms on the land, labor, and judiciary side to make it friendlier for businesses to invest in India.

John: That’s great. And I think we can bridge the gap between the discussion around policy and the consumer experience. Let’s focus on the goods and sales tax, the GST, for a minute.

This is a case where major policy, in your words, still has teething issues, so to speak. For many companies in India, the logistical changes to comply with GST, they can be an obstacle for success. Some are able to address it well. Others are having a tough time. But you learned about all this in an interesting destination. It was jewelry store’s basement. I was wondering, can you take us there and paint a picture of how you got down there, what you did, and what you learned?

Mandeep: Yes, you’re right, John. GST has had some teething issues, even though this has been a great progress as far as reforms are concerned. But the collections so far have been much lower than expected.

We believe the government needs to make the filing process much easier, and over time, that should increase the compliance.

Now one of the major beneficiaries of the implementation of GST has been Titan, India’s leading jewelry retailer. We visited one of their stores in New Delhi. So we were a group of 30 people, investors from across the world. We were greeted by the staff at the beginning, and we were guided to the basement level, which was equally large as the main level. The store staff did brief us about GST, as to how that has helped Titan gain a significant market share.

So historically, small regional players and family jewelers have dominated India’s jewelry retail industry for years, but GST made it challenging for the smaller businesses to adept, as they became less competitive after coming under the tax net. Their competitive advantage and the access to customers was eroded to quite some extent. And Titan was there to grab this opportunity by both hands.

We learned that they are launching 250 new collections every quarter. Titan has always had a very strong brand, but they had this perception of being a premium brand, and they have tried to address that because they saw this opportunity to gain market share.

So a result of all of this has been that Titan has accelerated its market share gain, and the exit of smaller competitors has also happened as a result. Overall, we have seen consumers have gravitated towards more established and trusted brands. And this has been a culmination of a lot of things and GST had one of the important roles to play in this.

John: Thank you. It’s amazing where you can gain the best insights. This has been extremely interesting and I really appreciate the time that you both spent with us. Alison, I’d just like to thank you for coming on On the Trading Desk.

Alison: Thanks, John, and we really appreciate it.

John: And thank you, also, Mandeep, for joining the program. The insights you both provided were awesome.

Mandeep: Thanks, John. It’s been a pleasure.

John: Well, that wraps up this episode of On the Trading Desk podcast. If you’d like to read the full Market Traveler piece, India Up Close, please visit https://www.wellsfargoassetmanagement.com. To our listeners, thank you for taking the time to listen. Until next time, I’m John Natale. Be well.

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