Zomato, Nykaa, Nestle, Dabur: Jefferies bets big on Gen Z boom in India

Jefferies expects Gen Z's income to increase 5x as they enter the workplace and are set to surpass Millennials by the end of the decade

Jefferies is betting big globally on spending by Gen Z over the next few years and expects India to lead this spending boom. Among listed players back home, Zomato, Nykaa, Nestle, Britannia, Devyani International Jubilant Foodworks and Dabur are some of the companies that Jefferies says will benefit most from this spending surge.

Gen Z – those born between 1997 and 2012 – Jefferies said, represent over 25 per cent of the global population now, and will make up 30 per cent of the workforce by 2025. Between now and 2030, Jefferies expects their income to increase 5x as they enter the workplace and are set to surpass Millennials by the end of the decade, perhaps reaching almost 30 per cent of the global income.

Europe, Jefferies notes, now has more over-65s than under-15s. India stands out as the biggest Gen Z country, accounting for 20 per cent of the global Gen Z population. China comes second but has its own demographic nuances. "Mexico, Indonesia, and Thailand are some other emerging market (EM) countries investors should look at," the Jefferies note said.

More than 55 per cent are located in Asia and 90 per cent within emerging / frontier markets. India offers investors the biggest exposure to this cohort. Gen Z wealth will be even more powerful when taking into account potential wealth transfers from previous generations. With families becoming smaller, Gen Z will eventually inherit from their parents and grandparents a proportionately larger amount of wealth than previous generations. In the US, the Baby Boomer and Silent generations alone are sitting on $78 trillion of household wealth," wrote Simon Powell, an equity strategist at Jefferies in a recent note.

Bolstered by its comparatively high fertility rate, India, Jefferies said, will enjoy a time-bound demographic dividend due to its relatively high share of working-age Gen Z population. Also, with a low urbanisation rate of 35 per cent, Jefferies believes any population shift from rural to urban will generate sizeable business opportunities.

Other Asian and developing / emerging markets, Powell said, will follow China as a model for economic growth: they will adopt similar manufacturing and labor-intensive industries, before transitioning to tertiary and quaternary economies.

"This will lead to wealth creation among their own Gen Z populations. We believe that it is therefore worth focusing on developing countries' youth, as they will soon offer incredibly lucrative opportunities: for example, India's Gen Z population of 375 million has already exceeded China's 250 million by almost 1.5x," the Jefferies note said.

Another advantage for Indian Gen Z, according to Jefferies, is the adoption of digital/internet penetration. India is now home to nearly 700 million internet users, second only to China and forms the largest user base for most global social platforms (YouTube, Facebook, Instagram, WhatsApp, etc.). Digital payments in India have also accelerated, led by Unified Payments Interface (UPI; a home-grown payment platform). All this, Jefferies believes, augurs well for e-commerce adoption, which is still only around 5-6 per cent of India's retail market despite growing 5x in the last six years.