Festive Season: Resilient & Upbeat

Festive period is associated with hope, positivity and an upbeat consumer sentiment. At least, that is the expectation of marketers each year. With pandemic eclipsing this over the past two years, this year the consumer sentiments are pointing towards optimism, hope and expectations of greater spendings.

A back-of-the-envelope calculation shows that over the next one-month period, Indian consumers are expected to spend around Rs 1.3-Rs 1.5 lakh crore on various ecommerce platforms, including the big spending on consumer electronics and home appliances. Auto sector expects a direct spend of around Rs 30,000 crore-Rs 35,000 crore on car possession in the coming month; the bookings for these were made 2-3 months ago. Consumers are also expected to collectively spend Rs 450-470 crore as advance booking amount for new cars. These will be delivered towards the end of year, going by the long waiting period.

On the home buying front, at least 30,000-33,000 new home bookings are expected in the next 30-40 days. At a minimum down payment of 10 per cent of the final amount, home developers may end up collecting Rs 20,000 crore-Rs 25,000 crore. New home registrations over the next 30-45 days in metros may generate a few thousand crore to the local authorities. “With the arrival of the festive season, we anticipate further growth in the residential sector. As sales and new launches have remained on a firm growth trajectory in H1 2022, the residential sector is expected to register strong performance in 2022. Sales increased by 120 per cent in Q2 2022 over Q2 2021, and over 70 per cent of growth was seen in H1 2022 compared to the same period in 2021,” says Anshuman Magazine, Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE.

Basically, the overall consumer sentiments are upbeat and will only grow with each passing week. This has also been re-affirmed by the latest Global State of Consumer Tracker by Deloitte. “Our recent wave 34 tracker indicates that despite the concerns over inflation, Indian consumers are willing to increase their spending during the upcoming festive season. Clearly, online purchases remain strong, albeit to a lesser extent than during the peak of the pandemic. Relevant sectors, such as consumer products and retail, automotive, and travel and hospitality, look to benefit from the buoyant mindset of the consumers covered in the survey,” said Porus Doctor, Partner and Consumer Industry leader, Deloitte Touche Tohmatsu India.

Ground realities
Of course, the upcoming festive season is coming in the backdrop of sluggish global and local economy and rising cost of essentials including fuel, metals and agriproducts, all translating into rising inflation for most economies. In order to better understand the upbeat consumer sentiments, it becomes essential to grasp the current economic challenges that India is facing. Rising inflation tops the list of concerns for the government and the central bank.

Therefore, it came as no surprise when on September 30, 2022, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) raised policy rates by 50 basis points (bps) a week after US Federal reserve went in for a sharp 75 basis point hike. The move from the central bank is a measure to fight against persistently high inflation. The MPC also lowered the growth projection of FY23 from 7.2 per cent to 7 per cent.

With the latest rate hike, the repo rate now stands at a three-year high of 5.9 per cent, making loans expensive. The repo rate is that rate at which the RBI lends shortterm funds to banks. With this, the total hike now stands at 190 bps in four months. Yes, while the loans and the EMI’s will become expensive, the RBI move did manage to boost the investor sentiment. The benchmark S&P BSE Sensex soared 552 points soon after the policy announcement, while the Nifty50 gained 149 points. The benchmark indices snapped their seven-day losing streak. BSE ended at 57,427, up 1,017 points or 1.8 per cent. The NSE Nifty50 ended at 17,094, up 276 points or 1.64 per cent. This was not the case a week ago for the week ended September 23, 2022. The S&P BSE Sensex for that week had fallen 1,020.80 points (1.73 per cent) to end at 58,098.92 and the Nifty 50 had settled at 17,327.35, down 302.45 points (1.72 per cent).

Following the announcement of the policy, yield on the 10-year benchmark government bond was trading 2 basis points higher at 7.36 per cent. The rupee was trading at 81.66 per dollar, stronger than 81.85 per dollar at previous close.

Why was this happening? Explained Vinod Nair, Head of Research at Geojit Financial Services: “A rise in the US 10-year bond yield and a strong dollar index influenced FIIs to flee emerging markets. A fall in liquidity in the banking system, a weak currency and a current premium valuation have set the market outlook bearish for the near term.” For the investors, Nair has a simple advice: “The current volatility might persist for a while. Investors are advised to wait and watch until the dust settles.”

Mind you, this may not be the end of rate hikes. RBI governor Shaktikanta Das has already hinted that. “The MPC was of the view that the persistence of high inflation necessitates the further calibrated withdrawal of monetary accommodation in order to contain second round effects and anchor inflation expectations,” Das said. Explaining the rate hike, he added: “This action will support medium-term growth prospects. Accordingly, the MPC decided to increase the policy repo rate by 50 basis points to 5.9 per cent and to remain focused on withdrawal of accommodation, while supporting growth.”

Welcoming the move, DK Srivastava, chief policy advisor, EY India said the RBI’s latest monetary policy review clearly indicates its continued focus on bringing CPI inflation below the upper tolerance limit of 6 per cent while minimising the impact of global headwinds on India’s exchange rate.

Welcoming the move, DK Srivastava, chief policy advisor, EY India said the RBI’s latest monetary policy review clearly indicates its continued focus on bringing CPI inflation below the upper tolerance limit of 6 per cent while minimising the impact of global headwinds on India’s exchange rate.

Mid-year outlook
Based on better compliance and efficient tax administration, there has been a robust growth in both direct and indirect tax revenues. This bodes well for the India’s ‘growth story’. While Goods and Services Tax (GST) collections, one of the indirect taxes, have surpassed Rs 1.40 lakh crore for six consecutive months, gross direct tax revenues saw a 30 per cent yearon-year jump at over Rs 8.36 lakh crore (as on September 17, 2022). Now, the advance tax collections for FY23 stands at Rs 2,95,308 crore (as on September 17) which shows a growth of 17 per cent.

This is good news. The bad news continues to be high inflation.

Therefore, the latest measures from the RBI, experts say, were much needed. Why? Because even the Rupee has been on a slide. It touched a new low on September 28 as rupee slumped 40 paise to an all-time low of 81.93 against the US dollar. Weak rupee means bad news for the import bill as India has to shell out more dollars. Till date, Rupee has depreciated by 9 per cent. Megh Mody, Commodities and Currencies Research Analyst at Prabhudas Lilladher, is more optimistic on Rupee slide. “Rupee technically has depreciated 3.80 per cent from 79 levels, which was recently tested. I think Rupee will take support of 82 and remain in the range of 82-80 levels. This consolidation will benefit the importers if it tests 80 levels over short term,” he said.

Meanwhile, the inflation projection for the current fiscal year was retained at 6.7 per cent by the MPC. While the projection for the second quarter is 7.1 per cent, the projection for the third quarter and fourth quarter is 6.5 per cent and 5.8 per cent respectively. For the first quarter of the next financial year, inflation has been projected at 5 per cent, which will be within the prescribed band of the central bank.

Festive impact: FMCG & durables
As the pandemic’s impact has diminished, fast-moving consumer goods (FMCG), consumer electronics, and ecommerce businesses are expected to report high sales during the festival season in the country. According to the Retail Business Survey by the Retailers Association of India, retail sales have almost recovered in sectors such as consumer durables and electronics and food and groceries, and observed a double-digit growth over pre-pandemic levels, by the end of 2021.

The festive sales for consumer electronics and durables typically account for approximately 30-40 per cent of total industry sales. After suffering a two-year setback due to factors including Covid-19, supply chain problems, and growing input costs, this sector is anticipated to register strong festive sales.

“Consumer electronics businesses are projecting a 15–20 per cent increase in sales growth over the year 2019,” said an analyst from TechSci Research. Several consumer electronics companies such as LG, Samsung, Sony, Panasonic and others are anticipating a good recovery during festivals, primarily driven by increased capacity and better technology products, he added. Similarly, Whirlpool claims to have around 30-40 per cent of annual sales during the festive season, and its online channel accounts for 10-15 per cent.

Canon India, the leader in digital imaging solutions is excited about the season. “This year we have expanded our line of EOS cameras with the launch of EOS R7 and EOS R10 which are the first cameras in the EOS R mirrorless system to be equipped with APS-C image sensors,” Manabu Yamazaki, President & CEO, Canon India says. “It is this festive time when individuals and families also come together. This provides an opportunity for content creators of all kinds to use our products,” adds Yamazaki.

Ashish Sinha

BW Reporters Ashish Sinha is an experienced business journalist who has covered FMCG, auto, infrastructure, tourism, telecom among several other beats. Ashish has keen interest in the regulatory scenario impacting different sectors. He writes on aviation, railways, post and telegraph, infrastructure, defence, media & entertainment, among a wide variety of other subjects.