Muted expectations

by Mahesh Vyas

Consumer sentiments remained unchanged in September 2017 compared to its level in August. It was 94.54 in both months compared to a base of 100 during September-December 2015. Except for a few months, consumer sentiments remained below the base level through most months since January 2016.

The consumer sentiment index comprise of two sub-indices - the index of current economic conditions and the index of consumer expectations.

During September 2017, the index of consumer expectations fell by 2.1 per cent after having fallen by 1.2 per cent in August. Consumer expectations have weakened rather sharply in recent weeks. As a result, the index of consumer expectations has fallen to its lowest level of 93.64, since the launch of these indices in January 2016.

The festive season has not raised expectations as it would be normally expected. The less-than-satisfactory rains and consequent fall in sowing has tempered expectations in rural India. Besides, sustained low labour participation rates has sapped the patience of urban India. To many, the promise of acche din has become a joke rather than a promise now.

In general today, it is not uncommon to see political promises being derided rather than them holding hope like they did, till recently. A tipping point seems to have been crossed. Little things seem to be making a difference. Hope is slowly giving way to uncertainty.

Inflation has remained low for a fairly long time. But, inflation expectations have not tempered. According to RBI’s survey on inflation expectations released in June 2017, households believed that inflation was 6.4 per cent (median value). And, they expected inflation to rise to 7.5 per cent in three months and then to 8.5 per cent in 12 months. In reality, consumer price inflation was 1.5 per cent in June 2017 and it was less than 3 per cent during April and May 2017 as well.

It would be quite pointless blaming the survey. It is more important to understand why consumers do not believe that inflation is down and why can their expectations of inflation not be tempered.

The immediate impact of introduction of the Goods and Services Tax is a rise in prices of several consumer durables and a substantial increase in uncertainty among medium and small businessmen, in particular exporters. Working capital disruptions is likely have added to the woes of many small-business households.

An added factor playing on the minds of professionals and small business persons alike is the threat of dire consequences of non-compliance. Administrative action is apparently crossing a line in many cases that is creating the perception of an over-bearing state.

Consumers seem to be shying away from purchases. Sales of televisions, refrigerators and washing machines dropped by 1-2 per cent this year during Onam and Ganesh Chaturthi compared to the last year, according to a report in Economic Times. There is some hope in sales picking up around Diwali but, the buzz is perceptibly muted. Companies are complaining that they cannot absorb the additional costs (of raw materials and GST) and consumers are shy of splurging because of uncertainties in the economic conditions.

E-tailers are upbeat as they continue to increase their market share in the total retail business. But, the brick-and-mortar retailers and even manufacturers are a little more circumspect although many talk of 20 and even 40 per cent increase in sales this festive season.

Would a rate-cut by the RBI tomorrow help? RBI’s data shows that lending for consumer durables has been falling. Outstanding consumer durables loans declined by Rs.36 billion during April-August 2017. The last rate cut on August 2, 2017 did not reverse this trend. But, the rate cut did impact consumer savings as many banks cut deposit rates.

No wonder then that urban consumer sentiments have been much worse than in rural India. The urban consumer sentiment index was at 90.7 in September 2017 compared to rural India’s 96.17. The index fell sharply in February 2017 to below 91 and it has remained between 90 and 92 since.

Worse still, urban consumer expectations fell to its lowest level at 89.23 in September 2017. This is the first time that the monthly consumer expectations index has fallen below 90.

Consumer durables companies are probably brave in announcing expectations of a 20 and even 40 per cent rise in sales this Diwali. It is more likely that they are desparately trying to pep-up a market that has decided to hang on to their savings for now.

First Published in Business Standard Link

Unemployment Rate
Per cent
4.5 -0.1
Consumer Sentiments Index
Base September-December 2015
96.5 +0.2
Consumer Expectations Index
Base September-December 2015
95.7 0.0
Current Economic Conditions Index
Base September-December 2015
97.8 +0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Dec 16 Mar 17 Jun 17 Sep 17
New projects 2.33 3.84 2.07 1.03
Completed projects 1.01 1.94 1.16 1.00
Stalled projects 1.14 0.73 2.67 0.67
Revived projects 0.18 0.67 0.30 0.29
Implementation stalled projects 0.83 0.33 0.68 0.62
Updated on: 16 Dec 2017 8:20PM
Quarterly Financials of Listed Companies
(% change) Dec 16 Mar 17 Jun 17 Sep 17
All listed Companies
 Income 6.2 10.2 9.8 8.2
 Expenses 6.3 11.9 10.0 9.5
 Net profit 40.2 16.0 -19.6 -18.1
 PAT margin (%) 6.0 6.0 5.3 5.6
 Count of Cos. 4,509 4,444 4,325 4,177
Non-financial Companies
 Income 5.9 11.8 10.4 8.1
 Expenses 7.2 15.6 10.6 8.1
 Net profit 24.5 -2.3 -25.0 -5.4
 PAT margin (%) 6.2 6.2 5.2 6.4
 Net fixed assets 6.9 9.3
 Current assets 2.7 79.6
 Current liabilities 8.8 10.0
 Borrowings 4.8 10.6
 Reserves & surplus 6.3 5.3
 Count of Cos. 3,484 3,440 3,358 3,245
Numbers are net of P&E
Updated on: 16 Dec 2017 8:20PM
Annual Financials of All Companies
(% change) FY14 FY15 FY16 FY17
All Companies
 Income 10.0 5.2 1.1 6.7
 Expenses 9.9 5.2 1.2 6.9
 Net profit -2.3 1.4 -13.1 20.6
 PAT margin (%) 3.2 3.2 2.9 6.4
 Assets 12.3 9.4 9.7 8.6
 Net worth 9.6 8.7 10.6 7.9
 RONW (%) 6.2 6.1 5.1 9.2
 Count of Cos. 24,045 23,818 20,791 4,756
Non-financial Companies
 Income 9.7 4.3 0.1 6.7
 Expenses 9.3 4.5 -0.6 7.5
 Net profit -2.7 -5.8 11.6 14.6
 PAT margin (%) 2.2 2.1 2.6 6.3
 Net fixed assets 11.6 13.3 15.5 7.3
 Net worth 8.1 7.1 11.0 6.3
 RONW (%) 5.1 4.9 5.4 10.3
 Debt / Equity (times) 1.1 1.1 1.1 0.7
 Interest cover (times) 2.0 1.9 2.0 3.4
 Net working capital cycle (days) 69 67 66 49
 Count of Cos. 19,288 19,270 17,281 3,624
Numbers are net of P&E
Updated on: 04 Dec 2017 11:59AM

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