Oncoming Festival Season May Spur Consumer Demand And Market Recovery
If there was a prize for the most important story of the week that shook the markets, it would likely to go to deepening consumption slowdown, which is being felt beyond the discretionary purchases such as vehicles and durables. The fast moving consumer goods companies manufacturing small-ticket items such as biscuits, soaps and other daily consumables are reporting a steady slide in the sales of these items. An innocuous statement by a top Parle Product official let the cat out of the bag on the consumption slowdown. Parle is not the only food products company to have flagged the slowdown in demand. Varun Berry, MD of Britannia, earlier this month had mentioned that consumers were ‘thinking twice’ about buying products worth just Rs 5. Making matters worse was a report from Mckinsey which warned of another Asian debt crisis as a slowing global economy puts pressure on earnings of Asian companies. The report also highlighted that, as of 2017, 43 per cent of all long term loans issued to Indian companies were held by companies that barely made enough profits to service their loans as the interest coverage ratio is less than 1.5.
There is no denying that most of the investors are feeling the effects of a huge drop in the stock prices as year-to-date the NSE benchmark index Nifty has turned negative, while the broader markets like Nifty Midcap and Smallcap are down by a massive 15.19 per cent and 19.59 per cent, respectively. However, the reports which surfaced in the media about a possible stimulus package from the government and a rollback of the super-rich tax on FPIs provided a short-lived sigh of relief for the investors, but no official announcement on the same resulted in disappointment. Now, the market participants are starting to wonder if there is going to be any proverbial light at the end of the tunnel.
This brings us to a major question: Why is the government not announcing stimulus, when there is growing clamour for the same from across the sectors? First, we need to go into a flashback; stimulus was an evil word in policy circles a decade ago. But it earned respectability after the US financial crisis of 2008 saw governments across Europe, US, Japan and China rolling out large fiscal stimulus packages. At the same time, Indian government announced a fiscal stimulus package in 2008- 09 and India sailed through the great economic crisis unscathed. Now, again, after a decade, we are probably going to see the cycle turning around all over again. One wonders whether the stimulus packages too have an expiry date, with a shelf-life of a certain period of time. One thing we need to understand about the stimulus package is that it should be properly rolled out and it should solve the core problem of the economy as well as keep the fiscal maths balanced. We are hearing industry experts calling that a decline in private consumption is pulling down economic growth and consumption expenditure is interconnected to income. This is especially so as the lower and middle class working population form a major part of the population of India, so it is of vital importance to provide enough job opportunities and increase their wages to spur consumption demand. The SBI’s latest study has also highlighted similar issues, stating that among the structural factors leading to the current demand slowdown is a substantial decline in the growth of both urban and rural wages as the ‘most crucial’ one.
The current government does not want to take decisions in haste as it is doing proper field work and analysing the situation. After a proper discussion with industry leaders and experts, the government is planning to roll-out sector-specific incentives. We have seen in the past that by providing easy and cheap money, it helps to propel the investments and solve the jigsaw puzzle of job creation. But, at the same time, there are some skeletons in the cupboard. The NPA crisis in the banking sector is one of the examples of decision taken in haste. The shortterm picture for the stock markets looks gloomy, but soon Corporate India will eye the oncoming festival season for recovery in consumer demand.
