Charlie Munger’s lollapalooza effect at play in India; what should investors know

The Lollapalooza Effect, coined by legendary investor Charlie Munger in 1995, is at play in India. It describes a scenario where several biases, tendencies, or forces combine to produce an outsized outcome. The NextGen GST reform has reduced rates across several areas of discretionary consumption—such as automobiles, consumer durables, hotels, insurance, protein foods, and confectionery—as well as essentials like non-protein foods, clothing, education, and healthcare.

In a strategy note, ICICI Securities said that a Lollapalooza effect on aggregate demand could emerge as rate cuts in GST, income tax, and interest on loans operate simultaneously, alongside rising government spending, a banking liquidity surplus, and continued pro-growth policymaking. These combined forces may create an upside surprise in growth, potentially justifying an upgrade to the RBI’s 6.5 per cent growth projection, despite concerns over US tariffs, the broking firm said.

For context, ICICI Securities cited the late Charlie Munger, who once said: "One of the ideas I came up with, which wasn’t in any of the books, was that Lollapalooza effects occur when three or four tendencies operate simultaneously in the same situation. I could see that it wasn’t linear—you’ve got Lollapalooza effects."

Citing this Lollapalooza effect, ICICI Securities argued that the GST reform could further boost India’s structurally rising per capita discretionary consumption. While the tax relief provides meaningful benefits to low-income households, these groups contribute minimally to discretionary spending, investments, and savings. The per capita demand boost is expected mainly from higher-earning individuals, particularly those benefiting from recent income tax cuts (largely in the Rs 8–24 lakh income bracket) and the 100 basis points RBI interest rate cut, which lowers EMIs and supports both consumption and investment.

What investors should know
ICICI Securities said some incremental demand could shift to investment rate as individuals explore buying homes, gold, mutual funds, stocks, etc. A combination of lower EMIs, tax cuts (income and GST) and positive sentiment due to a buoyant real estate cycle could divert some of the aggregate demand towards buying real estate, which may add to ‘investment rate’ and may not show up as consumption, although it could boost aggregate demand, ICICI Securities said. Savings in financial assets may also help in the financing of the investment rate, although savings in physical gold may not help the cause, it said.

Per capital consumption holds key
The brokerage further emphasised that per capita consumption, rather than population growth, has become the key driver of private final consumption expenditure (PFCE) in India. 

Over the past two decades, population contribution to PFCE has halved to 0.9 per cent in FY25 from 2 per cent in FY02, while nominal per capita consumption grew roughly tenfold (11 per cent CAGR), reaching Rs 1.4 lakh per year in FY25. Within PFCE, discretionary items now account for an all-time high 46 per cent, highlighting the growing role of discretionary spending in India’s consumption story.