- Poor consumer demand could dampen mood during festivals next month
- Automakers, retailers count on festival season for sales boost
- Analysts don't see income boost for consumers in short-term
Poor demand from Indian consumers could dampen the mood during festivals next month, especially for automobile makers and retailers that count on the season for a sales boost, analysts predict.
Consumers in the country typically buy everything from new cars to shoes for themselves and as gifts during celebrations steeped in religion and tradition. Yet the slowest economic growth in six years, unemployment at a 45-year high and tepid private consumption may see sales fall short of recent years, even after the government's $20 billion tax break to companies earlier this month.
"You can make the product 50 per cent cheaper, but there has to be income to spend," said Nitin Gupta, an analyst at SBICAP Securities Ltd. in Mumbai. "In the short-term, I don't see any kind of an income boost. Rather than giving cash to individuals, they have given it to companies."
Here's what other analysts say:
SBICAP Securities' Gupta
- The festive season is likely to be dull. Consumption is hit and household income has to increase for there to be better demand for companies selling fast-moving consumer goods.
- Corporate tax cuts are a long-term phenomena and won't help in the short term. It's uncertain how much companies could pass on the benefit in terms of lower prices.
- Recommends buying shares in Dabur India Ltd., holding ITC Ltd., Colgate-Palmolive India Ltd., and Hindustan Unilever Ltd., and selling Nestle India Ltd.
Harshit Kapadia, an analyst at Elara Securities India
- I'm not expecting a blockbuster festive season. It won't be muted either, but will be decent. Even last year demand was largely flat, that's why double-digit growth in demand on the lower end is possible.
- Distributors are preparing for the Navratri and Diwali season, but nobody is stocking up heavily. They are following the normal trend of keeping 15-20 days of inventory, whereas in past years they would keep 30-35 days ahead of the festival season
- Recommends buying Havells India Ltd. and selling Voltas Ltd. shares
Ravi Swaminathan, an analyst at Spark Capital Pte
- Sales growth in refrigerators and washing machines has been moderate (mid to high single digit).
- With early festive demand traction not very encouraging, dealers are hopeful for better traction over the next 2-3 months.
- Recommends adding Whirlpool of India Ltd., Havells and Crompton Greaves Consumer Electricals Ltd. shares
Basudeb Banerjee, an analyst at Ambit Capital Pvt.
- The best case scenario for automobiles is for demand to remain flattish on a year-on-year basis as last festival season was bad for demand. Things have gotten worse since then.
- Investors should avoid commercial vehicles and producers of lower-cost two wheelers, which face a bigger inventory pileup.
- Recommends selling Hero MotoCorp Ltd., Ashok Leyland Ltd. and Tata Motors shares, buying Eicher Motors Ltd., Bajaj Auto Ltd. and Maruti Suzuki India Ltd.
Shirish Pardeshi, an analyst at Centrum Broking Ltd.
- Demand is there, it's only the size of the wallet that's come down. In difficult times, people don't stop buying the product. If someone was buying a large pack before, maybe they'll buy a small pack now.
- In the festive season people tend to forget the bad times.
- Recommends buying shares in Dabur, Britannia, and Hindustan Unilever and Bajaj Consumer Care Ltd., on improving consumer sentiment, helped by a good monsoon that should support demand from rural areas, selling shares in Colgate-Palmolive