Saturday, November 23, 2024

Consumption shows signs of weakness as inflation bites hard

Automakers and consumer goods companies, including electronics retailers, fast food chains and apparel companies, reported subdued demand in March. Some executives cited inflation as the key concern pulling consumers back from spending freely on discretionary items, while others said recent rains in parts of north India have slowed demand for cooling appliances.“I, like the other brands, am hoping this is a temporary situation, and that’s what we’re betting on, but March has been a difficult month,” said Gaurav Burman, director of Burman Hospitality Pvt. Ltd, which operates the Taco Bell franchise in India.

Burman, whose family is involved in various other businesses as well, said the trends were similar across the board—consumer, insurance, and packaged goods, where consumers have become more careful than before.

Burman hopes the phenomenon is temporary; demand could see an uptick in April, he added. Events such as the ongoing Indian Premier League could help lift demand for fast food.

“The only headwind currently is that, like many of the other QSR brands, we see a tail-off in consumer discretionary spending—I think that’s a result of inflation. Post-covid people had saved a lot of money. Now that we’re out of covid, I think people realize that their basket is becoming a lot more expensive, and they are being less loose with their expenditure. So, we are seeing some headwinds on discretionary expenditure, but the brand is growing well. We are continuing to keep our foot on the pedal. Year-on-year, people are less able to consume the way they were previously,” he said.

Meanwhile, for electronic retailers, rains across the country impacted demand for cooling appliances that typically see a strong demand at the onset of summer. “Overall, the March quarter was ok, but unseasonal rains in March have pulled down sales of air-conditioners that reported a de-growth; air coolers have been a wash-out. Otherwise, demand for other appliances has been normal,” said Nilesh Gupta, director at retail chain Vijay Sales.

“We may not be able to cover up the sales we lost out in March in April,” he said.

A rise in temperature in April should help lift demand, Gupta said. But, overall, he said consumer durables as a sector has become immune to inflation as households find merit in buying appliances, a trend that picked up post-covid.

Even retail apparel companies felt the heat of weakening consumer demand in March. Sales were muted as customers postponed their shopping owing to the uncertainty around rising inflation, job losses and global sentiment.

“Demand was a bit weak in March. However, we are waiting and watching how the first quarter will pan out as concerns around the stock market and inflation persist. That said, we are not revising our growth forecast. We expect growth to be there, but we are cautious about cost. We are not seeing any inflationary pressures on the supply side as of now. So, we don’t expect this sentiment to continue for long,” said a senior official at a retail apparel company.

Automakers, on the other hand, are responding to inflationary pressures by increasing prices. This has forced buyers to take bigger loans, presenting a double-whammy as loans are getting costlier, as banks pass on the increase in repo rate to customers in the form of high interest rates on retail loans. Around 80% of the vehicles bought in India are financed by loans.“A good measure of demand is inquiries and booking pattern. We see while the inquiries have been pretty high, the fresh booking rate has decreased a bit. And that is why there is a slackening in demand. In our case, the fresh bookings over last year for March increased by 7%. But usually that increase hasbeen about that 13% every month – so it is about 6% lower,” said Shashank Srivastava, senior executive director, Maruti Suzuki India Ltd. That said, data from the Centre for Monitoring Indian Economy (CMIE) point to an exceptional surge in consumer sentiment in March. The Index of Consumer Sentiments (ICS) shot up by 6.7% for the week ended 26 March.

Typically, ICS usually moves by a little less than 1% in a week. In the past year, it increased by more than 6.7% only twice.

According to CMIE, the increase in the ICS seen in the week of 26 March is entirely because of its surge in rural India. Rural ICS jumped by 12.3%, while urban ICS shrank by 2% during the week.

While CMIE’s consumer survey points to a surge in rural sentiment, unseasonal rain in various parts of the country close on the heels of the harvest season is likely to impact agricultural incomes in the first quarter of the fiscal.

“The (rural) sentiment has gone down a little bit in the last couple of weeks. But we have to wait for a longer period of time to gauge the full picture. The fall in sentiment is also related to the unseasonal rainfall which we have seen, especially at this time of harvesting, and that could have an impact,” Srivastava added.

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