Low expectations cast shadow on the ensuing festive season

by Mahesh Vyas

Consumer sentiments have been deteriorating steadily in August. The BSE-CMIE-UMich Index of Consumer Sentiments has slipped during each of the four weeks of the month by about one per cent compared to the preceding week. This steady deterioration has taken the index to its lowest level so far, during the current fiscal year.

With just four days before the month closes, it is now reasonably clear that the month will post a decline in the index of consumer sentiments compared to July. This would be a fall for the second consecutive month in the index.

It is likely that the month’s index would be the lowest in its short history of 20 months.

Consumer sentiments have been worsening since a brief rise during April and May this year. Large scale farm loan waivers (or effective promises to do so) and government interventions to shore up prices of select agricultural commodities had helped improved sentiments. But, the effect was evidently short-lived.

The litany of woes have been piling up. Agitations have continued in Maharashtra. Other problems include the erratic temporal progress and spatial spread of monsoon showers, shutting of abattoirs in Bihar, floods in the east and dry spells in the UP, Punjab, Haryana, MP, parts of Maharashtra and southern states, uncertainties and inconveniences caused by GST, continued political uncertainty in Tamil Nadu and the breakdown of law and order in Haryana. The cumulative effect has played a role in keeping consumer sentiments depressed.

Prime Minister Narendra Modi’s independence day speech, which is usually very inspiring, failed to offset the effects of the rising tide of bad news.

The flow of good news has been exceptionally low. Even equity markets failed to enthuse. For the sake of records, August witnessed popular indices touch new peaks early in the month, and later the RBI cut interest rates. But, the markets as a whole were spooked by yet another round of low earnings and board room problems in traditionally-admired companies yet again. Returns during August are likely to be barely positive, if at all.

For the larger set of households the news of RBI’s rate cut is in fact bad news because deposit rates have been cut by many large banks.

Households in general feel that their economic conditions worsened in August compared to their conditions in July. The average index of current economic conditions for the first four weeks of August was about 3 per cent lower than its level in the corresponding weeks of July. Weekly indices do not average to the monthly index because the monthly indices are adjusted for non-response which is not possible in the weekly indices. Nevertheless, the weekly growth rates do tell us the direction of the trend fairly accurately. Weekly indices are very useful in foretelling the possibly monthly values. Currently, they seem to tell us that August was not a very good month for consumer sentiments.

Urban indices have fallen a lot more than the rural ones. The current economic conditions index for urban India is likely to show a fall of about 4 per cent in August. This would be a sharp fall. The corresponding rural index is seen falling by a lesser 2.5 per cent.

Perhaps, the most important takeaway from the preliminary understanding of August is that urban India has dropped its expectations from the future. We see a possible 4.5 to 5 per cent fall in the index of consumer expectations in urban India during the month. This is not good. Hopes on the future, expectations that things will improve in the near future, are critically important in enabling the turnaround.

Households spend more when they believe that the future is bright or at least it would be better than today. Expectations of increased household spending because of the Pay Commission Awards could be misplaced. Increased household income is not an adequate condition for increased household spending. Expectation of sustained high income is also important. It is worrisome that these expectations are falling.

In urban India, there are sufficient reasons to justify the reduced expectations. Reduced interest rates on deposits is just one. Sustained low labour participation rates is another. Now, the urban unemployment rate is also rising steadily.

The festive seasons is upon us already. A sharp fall in consumer expectations around now would not be good news for consumer goods companies.

First Published in Business Standard Link

Unemployment Rate
Per cent
4.3 +0.0
Consumer Sentiments Index
Base September-December 2015
95.1 +0.4
Consumer Expectations Index
Base September-December 2015
94.8 +0.3
Current Economic Conditions Index
Base September-December 2015
95.5 +0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 16 Dec 16 Mar 17 Jun 17
New projects 2.38 1.50 2.97 1.71
Completed projects 2.23 0.95 1.86 1.12
Stalled projects 0.65 1.01 0.35 2.66
Revived projects 0.91 0.18 0.62 0.29
Implementation stalled projects 0.38 0.82 0.33 0.67
Updated on: 22 Sep 2017 4:20PM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.2 10.2
 Expenses 1.9 6.3 11.9 10.5
 Net profit 14.6 40.3 16.7 -18.4
 PAT margin (%) 6.9 6.1 6.1 5.4
 Count of Cos. 4,500 4,502 4,424 4,203
Non-financial Companies
 Income 0.6 5.9 11.7 10.8
 Expenses -0.2 7.2 15.5 11.0
 Net profit 26.6 24.5 -2.2 -23.7
 PAT margin (%) 6.9 6.2 6.3 5.3
 Net fixed assets -9.2 7.6
 Current assets 8.1 2.0
 Current liabilities 11.6 8.5
 Borrowings 3.1 4.8
 Reserves & surplus 8.4 6.5
 Count of Cos. 3,481 3,487 3,436 3,285
Numbers are net of P&E
Updated on: 22 Sep 2017 4:30PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 10.0 5.0 1.0
 Expenses 12.8 9.9 5.1 1.2
 Net profit 1.0 -2.2 1.1 -15.2
 PAT margin (%) 3.5 3.2 3.2 3.0
 Assets 14.3 12.3 9.4 8.8
 Net worth 9.6 9.6 8.8 7.7
 RONW (%) 6.8 6.2 6.1 5.3
 Count of Cos. 25,932 23,621 23,131 19,375
Non-financial Companies
 Income 11.9 9.7 4.1 0.0
 Expenses 12.3 9.3 4.3 -0.6
 Net profit -8.4 -2.4 -6.3 6.5
 PAT margin (%) 2.4 2.2 2.1 2.7
 Net fixed assets 12.9 11.6 13.1 13.9
 Net worth 7.9 8.2 7.3 7.0
 RONW (%) 5.5 5.1 4.9 5.6
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 2.0 1.9 2.0
 Net working capital cycle (days) 72 69 67 67
 Count of Cos. 20,312 18,893 18,620 15,945
Numbers are net of P&E
Updated on: 21 Sep 2017 10:15AM

Time-series available since 2007-08

Growth dropped to 5-quarter low during Q1 2017-18