Consumer expectations weakens its lead

by Mahesh Vyas

Consumer sentiments improved by an impressive 5.7 per cent during the week ended June 18. It is not surprising that the improvement is entirely in rural regions. Rural sentiments improved by 11.1 per cent while urban sentiments declined by 3.4 per cent. A wave of loan waivers or promises of public procurement of agricultural crops at higher prices and more importantly expectations that farm loans will be waived further, have improved rural sentiments.

Farmer agitations have spread beyond Madhya Pradesh and Maharashtra. Correspondingly, rural expectations have risen. The rural index of consumer expectations rose by 9 per cent during the past week. The timely arrival of the monsoon rains has also helped improve rural expectations.

In spite of these improvements in consumer expectations, the BSE-CMIE-UMich consumer sentiments indices tell us that there is a substantial weakening of consumer expectations since May this year. This is a significant break from the past.

Ever since the launch of these consumer sentiment indices, consumer expectations have been ahead of consumers’ current economic conditions. Hopes on the future were always higher in India, than any assessment of current conditions. This is starkly different from the behavior of American consumers.

According to the indices of consumer sentiments generated by the Surveys of Consumers, University of Michigan the index of consumer expectations is always lower than the index of current economic conditions. In fact, the difference between the two has been rising. The index of current economic conditions has been scaling a sharper gradient compared to the index of consumer expectations. In May 2017, the Current Index was 111.7 while the Expected Index was 87.7. This is the opposite of what we have seen in India, till recently.

The Current Index (and also BSE-CMIE-UMich’s Index of Current Economic Conditions) measures perceptions of households regarding their current economic conditions compared to a year ago, and whether this is a good time to buy consumer durables. The Expected Index (and also the Index of Consumer Expectations) measures households’ perception regarding their expected economic conditions in the future and their perception about the performance of the economy on a one-year and five-year horizon.

Usually, the Expected Index in the US is about 20 per cent lower than the Current Index. In contrast, in India, the Index of Consumer Expectations is about 2.5 per cent higher than the Index of Current Economic Conditions. This Indian phenomenon of expectations being better than current conditions in India has weakened in recent weeks.

In May 2017, the Index of Consumer Expectations was 0.5 per cent lower than the Index of Current Economic Conditions. Expectations recovered during the first ten days of June. But, during the week ended June 18, the expectations index was 2.3 per cent lower than the index of current economic conditions.

In rural India, both indices have risen smartly thanks to the current wave of loan waivers and other supports. Expectations have also grown, albeit at a much slower pace compared to current conditions. In the current circumstances, this may not be considered to be altogether undesirable. But, this is not just about expectations of personal income; it is also about expectations of the growth of the economy in the next one to five years. Therefore, the relative weakness in expectations has elements we must worry about.

In urban India, both indices declined during the week ended June 18. But, index of expectations fell more sharply than the index of current conditions.

It is not clear whether this relative weakness in expectations will persist. But, the lower level of expectations in May compared to current economic conditions, and its continued relative weakness in June is a somewhat worrying break from its past performance. It is also worrying because the current expectations at least partly reflect the ill-conceived, inflated expectations of farmers.

In a few weeks we will learn whether the current angst in farmers will dissipate with the arrival of a good monsoon or whether it will get worse if the monsoon does not oblige.

Retrieving urban India from its persistently low consumer sentiments is the equally daunting challenge. Neither the monsoon nor a booming stock market is of any use here. Urban India needs more jobs.

First Published in Business Standard Link

Unemployment Rate
Per cent
5.7 +0.1
Consumer Sentiments Index
Base September-December 2015
92.8 -0.4
Consumer Expectations Index
Base September-December 2015
91.9 -0.3
Current Economic Conditions Index
Base September-December 2015
94.1 -0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Mar 17 Jun 17 Sep 17 Dec 17
New projects 4.07 2.13 1.22 1.08
Completed projects 1.96 0.86 1.05 0.92
Stalled projects 0.74 2.67 0.67 0.93
Revived projects 0.86 0.30 0.29 0.23
Implementation stalled projects 0.33 0.69 0.73 0.58
Updated on: 18 Feb 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Mar 17 Jun 17 Sep 17 Dec 17
All listed Companies
 Income 10.2 9.7 7.9 12.1
 Expenses 11.9 10.0 9.0 12.9
 Net profit 16.4 -19.8 -16.8 -10.4
 PAT margin (%) 6.0 5.3 5.7 5.2
 Count of Cos. 4,469 4,454 4,426 3,985
Non-financial Companies
 Income 11.8 10.3 7.7 13.0
 Expenses 15.6 10.6 7.5 11.8
 Net profit -2.2 -25.2 -4.2 15.7
 PAT margin (%) 6.1 5.2 6.4 6.8
 Net fixed assets 6.9 9.2
 Current assets 2.7 78.8
 Current liabilities 8.9 11.0
 Borrowings 4.9 10.5
 Reserves & surplus 6.1 5.2
 Count of Cos. 3,453 3,439 3,408 3,095
Numbers are net of P&E
Updated on: 18 Feb 2018 12:20PM
Annual Financials of All Companies
(% change) FY14 FY15 FY16 FY17
All Companies
 Income 10.0 5.4 1.4 6.7
 Expenses 9.9 5.5 1.6 7.1
 Net profit -2.5 0.9 -12.9 18.8
 PAT margin (%) 3.1 3.1 2.8 5.6
 Assets 12.3 9.5 9.8 8.4
 Net worth 9.6 8.6 10.8 7.5
 RONW (%) 6.1 6.0 5.0 8.2
 Count of Cos. 24,506 24,447 22,230 10,161
Non-financial Companies
 Income 9.7 4.6 0.5 6.6
 Expenses 9.4 4.7 -0.1 7.7
 Net profit -3.1 -6.9 12.6 11.7
 PAT margin (%) 2.2 2.1 2.5 5.2
 Net fixed assets 11.7 13.2 15.4 7.5
 Net worth 8.2 7.1 11.2 5.5
 RONW (%) 5.1 4.8 5.3 8.9
 Debt / Equity (times) 1.1 1.1 1.1 0.8
 Interest cover (times) 2.0 1.9 1.9 2.8
 Net working capital cycle (days) 69 67 66 52
 Count of Cos. 19,752 19,893 18,615 7,888
Numbers are net of P&E
Updated on: 04 Feb 2018 9:54AM

Data added for HPI at Assessment prices and HPI at Market prices