Sentiments recovery lags in middle income households

by Mahesh Vyas

The index of consumer sentiments (ICS) improved 10.7 per cent in July 2021 over its level in June 2021. However, at 53.01 (base 100 in September-December 2015) it was still just half of its level before the Covid-19 induced lockdowns began in March 2020. In February 2020, the index was at 105.3. The July 2021 index was also lower than its level during each of the five months from December 2020 through April 2021 when the index averaged 54.7. The second wave of Covid-19 had dragged down the ICS to around 48 in May and June 2021. July saw a smart but still incomplete bounce-back. Thus, while the recovery in July was impressive, there is still a long way to go for sentiments to come back to pre-pandemic levels.

The first two weeks of August have not been good for sentiments. The ICS fell 1.6 per cent in the week ended August 8 and then by 2 per cent in the week ended August 15. Nevertheless, we try and understand the nature of the recovery in sentiments in July, particularly in terms of the differences across income groups.

The recovery of July was broad based but was more pronounced at the two ends of the income distribution of households. The ICS improved for households with relatively modest income and for the rich. However, the July recovery largely missed the middle middle-income segment, while it was still good for what may be called as the lower middle income households and the upper middle income households.

Households that earn less than Rs.100,000 a year saw a 46 per cent improvement in sentiments. This segment saw the best recovery during July. These households had suffered the most in May when the second wave struck India. Their ICS fell by 25 per cent in May and then by another 7.5 per cent in June. The recovery in July recovers all this lost ground. The ICS for this group was 56.4 in July, which was slightly higher than the 55.3 level of April 2021. It is also the highest since March 2020. This group of households consists of about 54 million households. This number has grown from about 30 million earlier because Covid and lockdowns have pushed down the incomes of many households into this bracket of the poorer households. They accounted for a little less than ten per cent of all households earlier but now they account for about 17 per cent of all households.

But, the next best recovery was in the segment that has the best buying power, the rich.

Households that earn more than a million rupees a year registered a healthy improvement in sentiments in July. Their ICS grew by 16.6 per cent to 63.3. This growth is not anywhere close to the 46 per cent growth in sentiments of the poor. But, it is still a respectable growth. Besides, sentiments of the richer households have recovered the most from the fall induced by the Covid-19 pandemic compared to other income groups. The ICS for this group in July 2021 was 60 per cent of its level in February 2020. Other groups are mostly around 50 per cent of their February 2020 level.

This group of rich households consists of about 3 million households. Their numbers have dropped from about 4 million before the pandemic.

Month-to-month variations in the ICS of the richer households have been volatile. Since January 2021, the variations have ranged from a 25 per cent increase to a 15 per cent fall. The ICS for this income group was still more than 5 per cent below its level in January and nearly 7 per cent below its level in February 2021. This volatility mars the gains made by this group in terms of consumer sentiments.

Lower middle income households those with an annual income in the range of Rs.100,000 and Rs.200,000 had lost substantial ground in the quarter ended June 2021. Their ICS fell from 53.6 in March 2021 to 44.5 in June 2021. In July the index bounced back to 49.9 implying an increase of 12.1 per cent over the June 2021 level. Although this is a respectable increase in a month, the recovery in sentiments of this group from the pandemic has been unimpressive.

Households in the upper middle income group those that earn between half a million and a million rupees, form a relatively small group of only about 20 million households. They saw a 7.8 per cent improvement in sentiments.

The largest income group is the middle middle-income group. These are the households that earn between Rs.200,000 and Rs.500,000. This group consists of a little over 160 million households. They saw the lowest growth in sentiments during July, a mere 1 per cent increase over June. This big group of households has also seen the least recovery from the fall from pre-pandemic levels.

While the recovery in sentiments in July is impressive, it needs better traction in the critical income groups. The recovery in richer households needs to be less volatile and the recovery needs to reach middle income households better.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.4 +0.5
Consumer Sentiments Index
Base September-December 2015
73.4 +0.2
Consumer Expectations Index
Base September-December 2015
72.0 0.0
Current Economic Conditions Index
Base September-December 2015
75.6 +0.6
Quarterly CapEx Aggregates
(Rs.trillion) Sep 21 Dec 21 Mar 22 Jun 22
New projects 3.34 3.91 7.76 3.79
Completed projects 1.28 2.76 1.25 1.05
Stalled projects 0.28 0.08 0.28 0.25
Revived projects 0.39 1.98 0.28 0.28
Implementation stalled projects 0.26 0.65 0.09 0.08
Updated on: 08 Aug 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.9 39.6
 Expenses 26.7 21.3 19.8 42.5
 Net profit 55.8 35.4 32.1 9.4
 PAT margin (%) 9.6 9.0 9.1 7.1
 Count of Cos. 4,695 4,739 4,575 1,430
Non-financial Companies
 Income 35.6 29.1 24.9 51.9
 Expenses 35.9 28.7 25.6 57.5
 Net profit 59.4 19.1 12.5 -9.5
 PAT margin (%) 8.8 7.5 7.9 5.4
 Net fixed assets 4.9 2.2
 Current assets 10.9 15.2
 Current liabilities 0.8 11.7
 Borrowings 12.2 3.6
 Reserves & surplus 12.4 11.5
 Count of Cos. 3,382 3,424 3,317 1,041
Numbers are net of P&E
Updated on: 08 Aug 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -0.9 18.9
 Expenses 0.4 -3.2 16.4
 Net profit -5.8 73.4 62.3
 PAT margin (%) 2.0 4.4 10.9
 Assets 9.0 9.9 10.1
 Net worth 4.8 11.7 12.6
 RONW (%) 3.4 6.9 13.4
 Count of Cos. 32,607 30,609 2,075
Non-financial Companies
 Income -1.1 -2.0 27.5
 Expenses -0.9 -4.0 26.3
 Net profit -22.1 64.4 58.8
 PAT margin (%) 2.2 4.1 11.0
 Net fixed assets 11.2 2.2 3.3
 Net worth 2.1 10.7 13.1
 RONW (%) 4.6 7.8 17.5
 Debt / Equity (times) 1.2 1.0 0.5
 Interest cover (times) 1.9 2.4 6.9
 Net working capital cycle (days) 82 86 44
 Count of Cos. 25,804 24,027 1,526
Numbers are net of P&E
Updated on: 05 Aug 2022 10:42AM