There is some cause for worry for companies, especially those making fast moving consumer goods. As the festival season sets in next month, a string of surveys paint a gloomy picture of consumer sentiments in the country.
Slowing GDP growth, a poor monsoon and sustained inflationary pressures could temporarily reverse the virtuous consumption cycle that India has benefitted from in the past decade, says a survey.
The job situation, too, is not good. The waiting period to find a job has increased from 2-3 months to 9-10 months. The rate of growth in new hires in calendar 2012 is much lower, while the new working age population is finding it increasingly difficult to get appropriate jobs, says another survey. Several other surveys by apex chambers such as FICCI and Assocham, too, have indicated waning consumer confidence. The lack of inclusive growth is posing a structural risk to consumption, they say, which includes spending on low-ticket items.
As consumers lose confidence in future income, they decrease consumption. Research firm Espírito Santo Securities says at the current levels, “consumer stocks are priced to perfection and do not discount the brewing storm.” But the broking firm has turned bearish on the consumer sector overall.
Indian consumers have become progressively more pessimistic about future prospects over the last two years, as reflected in the Reserve Bank’s consumer confidence surveys. Negative real wage inflation and the plunge in job listings primarily reflect the pain of the urban population. “This is distressing as the majority of sales for the fast moving consumer goods (FMCG) sector are generated in urban markets. Investors have chosen to hide in the consumer sector and trades are getting crowded,” the Espirito said in a recent report.
As consumers reduce spending, discretionary spending on beverages and rich foods, including milk and milk products will be impacted first.