Consumer sentiments rise slowly

by Mahesh Vyas

The slow and steady pace of recovery of consumer sentiments observed in India since January 2022 continued into April. The Index of Consumer Sentiments (ICS) rose by 3 per cent during the month. This is similar to the low single-digit increases in the index seen since January 2022. In fact, it is a tad slower than the monthly increases of the recent past. The index had risen by 4 per cent in January, 5 per cent in February, 3.7 per cent in March and now a lower 3 per cent in April.

It is good to see a steady improvement in consumer sentiments month after month, but it is somewhat disquieting that the rate of improvement has been rather small and that it is getting smaller.

It is a relief that in this April there was no new calamity like there was in the past two Aprils. But, the more traditional kind of insidious challenges have raised their head. Rising inflation, creeping borrowing rates and elevated unemployment rates are weighing in on household sentiments. Perhaps, these old demons are dampening the otherwise somewhat sprightly spirits of households. Wounds of the pandemic-induced lockdowns on households are healing. Average household incomes have repaired to their pre-lockdown levels. They are just a shade higher than they were two years ago. The healing is tender, yet. Scars of the economic shock remain. Perceptions of households regarding their current incomes and prospects of future incomes remain muted compared to the perceptions before the lockdown shock.

As incomes revert to pre-pandemic levels and start rising beyond those levels, it is important that household perceptions regarding their own incomes and their prospects also improve. This is important for a sustained economic recovery. It is in this context that the new challenges become important. Assuming that there are no new economic shocks, it will be the trajectories of consumer prices, interest rates and employment that would determine household perceptions and therefore consumer sentiments going forward. As the Russia-Ukraine war keeps commodity prices high and central banks react to the prospects of higher inflation, in the coming months, the expectation is that inflation will remain high and interest rates will rise and employment growth will remain muted. It is likely therefore that growth in consumer sentiments may be restricted to the current low single-digit levels.

While inflation, interest rates and employment are believed to influence consumer sentiments what is measured to gauge sentiments is something more direct. It is household perceptions regarding their current and prospective incomes, their propensity to spend on non-essentials and their perceptions regarding the future. The index of consumer sentiments bundles these perceptions regarding current and future wellbeing.

The ICS comprises two broad components the Index of Current Economic Conditions (ICC) and the Index of Consumer Expectations (ICE).

The recovery in ICS since January 2022 is driven largely by the ICC. It is an improvement in the perception of households regarding their current incomes and their propensity to spend on non-essentials that is driving up consumer sentiments. These are the two factors that form the ICC. Household perceptions regarding the future have been improving as well but not at the same pace. Factors such as household perceptions regarding their future incomes or economic prospects in the short and long terms have not improved similarly. These are the factors that go into the computation of the ICE.

During the first four months of 2022, the ICC grew by 24 per cent. In contrast, the ICE grew by a much lesser 12 per cent.

As the economy has been recovering and as incomes are restored, an increasing proportion of households are recognising this recovery of their current incomes. In April 2022, 12.2 per cent of the households reported an increase in incomes compared to a year ago. This is close to the average proportion of households reporting an increase in income in recent months. The proportion of households reporting higher income since February 2022 has bumped up to a significantly higher level than the levels seen before. Similarly, there is a fall in the proportion of households who report a fall in their incomes.

Till recently, this improvement in household incomes seen in the data, however, did not translate into a corresponding increase in the propensity of households to spend on non-essentials. April 2022 finally changed this. The proportion of households who considered this to be a better time to buy consumer durables increased from 10.5 per cent in March 2022 to 12.2 per cent in April 2022. This change in mood is important in strengthening the recovery process.

It is important now for the ICE to catch up. The ICE is derived from three questions perceptions regarding the households’ income over the next year, perception regarding the performance of the economy over the next one year and separately, the economy’s performance over the next five years. Of these, households are quite sanguine regarding their own incomes. 12.7 per cent households believe that their incomes next year would be better than today although only 12.2 per cent believe that it has improved over the past one year.

The problem is in the confidence on the economy. Only 11.2 per cent believe it will do better over the next year and only 11.6 per cent believe it will do consistently well during the next five years. It could be that the fear of rising inflation, interest rates and unemployment rates is gnawing their confidence in the Indian economy.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.3 -1.9
Consumer Sentiments Index
Base September-December 2015
69.5 +0.5
Consumer Expectations Index
Base September-December 2015
69.4 +0.4
Current Economic Conditions Index
Base September-December 2015
69.7 +0.7
Quarterly CapEx Aggregates
(Rs.trillion) Jun 21 Sep 21 Dec 21 Mar 22
New projects 2.89 3.14 3.46 4.89
Completed projects 0.73 1.28 2.76 1.05
Stalled projects 0.33 0.28 0.06 0.29
Revived projects 0.14 0.39 2.06 0.28
Implementation stalled projects 0.64 0.25 0.65 0.07
Updated on: 16 May 2022 3:28PM
Quarterly Financials of Listed Companies
(% change) Jun 21 Sep 21 Dec 21 Mar 22
All listed Companies
 Income 42.3 27.5 23.5 19.8
 Expenses 41.9 26.7 21.7 17.4
 Net profit 139.8 55.1 31.9 45.7
 PAT margin (%) 9.0 9.6 9.0 11.4
 Count of Cos. 4,556 4,677 4,690 905
Non-financial Companies
 Income 61.0 35.7 29.3 27.6
 Expenses 62.6 36.0 29.0 27.9
 Net profit 192.7 59.7 18.3 25.7
 PAT margin (%) 8.4 8.8 7.5 10.3
 Net fixed assets 4.9 -2.1
 Current assets 10.8 19.0
 Current liabilities 0.8 12.5
 Borrowings 12.1 7.1
 Reserves & surplus 12.4 9.5
 Count of Cos. 3,330 3,382 3,402 637
Numbers are net of P&E
Updated on: 16 May 2022 3:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.5 -0.9 16.1
 Expenses 0.3 -3.3 16.7
 Net profit -4.9 72.5 24.3
 PAT margin (%) 2.0 4.5 12.3
 Assets 8.9 9.6 3.3
 Net worth 4.6 11.5 5.2
 RONW (%) 3.4 7.0 12.4
 Count of Cos. 32,202 29,546 46
Non-financial Companies
 Income -1.3 -2.0 16.2
 Expenses -1.0 -4.1 17.4
 Net profit -20.8 63.1 20.8
 PAT margin (%) 2.2 4.2 11.1
 Net fixed assets 11.2 1.3 8.5
 Net worth 2.2 10.4 8.3
 RONW (%) 4.7 8.0 15.8
 Debt / Equity (times) 1.2 1.0 0.1
 Interest cover (times) 1.9 2.5 26.6
 Net working capital cycle (days) 81 84 38
 Count of Cos. 25,551 23,301 36
Numbers are net of P&E
Updated on: 12 May 2022 7:22AM