An abstruse improvement in consumer sentiments

by Mahesh Vyas

The index of consumer sentiments improved in June to 42.2 compared to its level of 39.9 in May. The index has a base of 100 in the period September-December 2015. Sentiments, which measure household perceptions regarding their current and future economic well-being, are therefore about 40 per cent today of what they were nearly five years ago. The index got this bad only during the lockdown. In the past, the index was range-bound between 90 and 100 and recently averaged around 105.

The lockdown has therefore had a major negative impact on household sentiments.

The index fell 7.6 per cent in March, the month that was partially impacted by the lockdown. Sentiments fell by a massive 53 per cent in April which bore the full brunt of a strict lockdown throughout the month. The fall continued into May which saw the index shrink further by 12.8 per cent to its lowest level of 39.9.

June saw a very small improvement compared to the past deep laceration of the index. It is interesting to see just how this improvement turned out to be. It seems that the number of people who are getting worse off is reducing but the number of households who are getting better-off is also reducing. In the tug between the two, the former is winning by a whisker. That is what has improved the sentiment in June. This needs a little explanation.

The index is derived from answers to five questions. Question constructs have been simplified here for lucidity.:

  1. Is the household income better, or worse or the same as a year ago?
  2. Does the household expect income to be better, or worse or same a year later?
  3. Will the financial and business conditions in the country improve, worsen or remain the same over the next 12 months?
  4. Will the business conditions in the country improve, worsen or move up and down over the next five years?
  5. Is this a good time, a bad time, or no different a time to buy consumer durables?

The index is created by deploying net responses of each question. The net response of a question is the sum of “better” responses less sum of “worse” responses for the question.

Net responses remained negative in both May and June. But, the intensity of the net negative responses eased in June. They did so because less households reported a worsening of conditions and not because more people reported an improvement of conditions. In fact, the proportion of household reporting an improvement of conditions declined - to rock bottom levels. Yet, the index improved because lesser people said that conditions had worsened.

The worst seems to be over but, things ain’t getting better. We describe the results for each of the five questions below.

In June, only 4.4 per cent households said that their economic well-being was better than it was a year ago. This is worse than the situation in May when 6.1 per cent households said that their conditions were better than a year ago. Of course, it has never been so bad. But, here’s the spin. While 52.8 per cent said that they were worse off than a year ago in May, a smaller proportion, 50.7 per cent said that they were worse off in June. And so, on a net basis, 46.7 per cent said that they were worse off in May, and a slightly lower, 46.3 per cent said that they were worse off in June. This contributes to making the index in June better than it was in May.

This is also the case with income that households expected in a year ahead. While the proportion of households that expect incomes to improve in a year fell quite from 7.1 per cent to 4.6 per cent, those that felt incomes would worsen declined from 52.3 per cent to 49 per cent. As a result, the net expectation of worsening incomes improved from 45.2 per cent to 44.4 per cent. This again contributed to making the index in June better than it was in May.

Broadly, the data is similar for the other three indicators as well. The proportion of households that are optimistic about the future are extremely small - between 2 and 3 per cent whereas around half the respondents believe things will go downhill over one and even five years. Yet, on a net basis, the situation was better in June than in May.

The dramatic improvement in employment in June is not reflected in household incomes. It is interesting to note that while the employment rate improved from 29.2 per cent in May to 35.9 per cent in June 2020 leading to the creation of 70 million additional jobs, the proportion of households that said in June that their incomes were higher than a year ago was only 4.4 per cent and this was lower than the 6.1 per cent who said it was higher in May.

The obvious inference from this is that the increased jobs did not help much in improving incomes. Such jobs must have come at lower wage rates or lower other incomes.

The marginal improvement in sentiments in June over May is a reflection of the fact that slightly less people feel worse off in June than the proportion of people who felt like this in May. It does not mean that more people are feeling better.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.7 +1.1
Consumer Sentiments Index
Base September-December 2015
44.9 0.0
Consumer Expectations Index
Base September-December 2015
47.2 0.0
Current Economic Conditions Index
Base September-December 2015
41.2 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.17 5.24 3.49 0.59
Completed projects 0.84 1.65 1.71 0.19
Stalled projects 0.41 0.61 0.77 0.11
Revived projects 0.43 0.83 0.42 0.55
Implementation stalled projects 0.90 0.15 9.54 0.07
Updated on: 03 Aug 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.7 -23.8
 Expenses -3.1 -2.2 -1.7 -25.6
 Net profit -1.3 -10.7 -43.9 -14.4
 PAT margin (%) 5.3 5.1 2.6 9.0
 Count of Cos. 4,447 4,418 3,911 475
Non-financial Companies
 Income -6.3 -5.5 -8.8 -34.4
 Expenses -6.7 -6.4 -4.8 -36.0
 Net profit -13.5 -13.6 -45.5 -32.7
 PAT margin (%) 5.8 5.7 3.6 8.9
 Net fixed assets 10.4 13.1
 Current assets 5.0 3.1
 Current liabilities 5.0 4.6
 Borrowings 8.4 14.6
 Reserves & surplus 5.9 2.3
 Count of Cos. 3,337 3,309 2,991 372
Numbers are net of P&E
Updated on: 03 Aug 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.2 5.2
 Expenses 9.8 13.4 2.7
 Net profit -39.9 21.0 38.6
 PAT margin (%) 2.0 2.4 7.6
 Assets 10.9 9.3 10.2
 Net worth 7.5 8.5 9.4
 RONW (%) 3.5 4.4 9.0
 Count of Cos. 26,524 25,174 1,087
Non-financial Companies
 Income 8.6 13.6 0.9
 Expenses 8.7 13.8 -0.4
 Net profit -8.5 23.7 6.4
 PAT margin (%) 2.8 3.2 10.2
 Net fixed assets 7.1 5.0 23.4
 Net worth 6.1 8.4 6.5
 RONW (%) 5.7 7.0 14.1
 Debt / Equity (times) 1.0 1.0 0.6
 Interest cover (times) 2.1 2.4 5.0
 Net working capital cycle (days) 77 70 26
 Count of Cos. 21,646 20,492 792
Numbers are net of P&E
Updated on: 28 Jul 2020 9:46PM