Column: Shades of grey

Written by Shailesh Dobhal | Updated: Jul 7 2011, 06:24am hrs
What do the barrage of real estate messages that clog your mobiles inbox each day signal Well, apart from the obvious, and abysmal, failure of the do-not-call-registry, does it not tell you something about the warped demand-supply equation in the countrys housing sector Surely, inventories are piling up and there arent enough buyers, or why else would developers, and some relatively decent names here, hound consumers day and night to hawk that dream house

And wherever you choose to look, consumers are becoming cautious in their spends, if not penny pinching as yet. Car sales growth has moderated sharply to single digits in April-June after a heady 30% growth just three months ago. Sales growth has moderated across categoriesfrom cars and property to consumer expendables, skin creams, electronics and apparel.

According to Residex, the National Housing Banks residential housing price index, for the three months ending March, home prices have come down in seven of the 15 tracked cities, with IT city Bangalore correcting the most, down almost a fifth compared to October-December 2010. Others that have witnessed a fall are Kochi, Faridabad, Hyderabad, Surat, Bhopal and Jaipur. Only three citiesPune, Lucknow and Delhihave seen a marginal uptick, with price stabilising in the rest five.

According to market researcher IMRB International data, sales growth in consumer expendables like soaps and detergents for the first four months of 2011 moderated to 5%, from 8% for the corresponding period of last year, with growth much more tardy in personal care items like skin creams and shampoos, down to just a fifth (8%) compared to a high of 40% in 2010. And apparel makers have been reporting demand contraction, by almost a fifth, due to soaring cotton prices and duty hikes in the last two months.

Do all these numbers mean that high inflation and high interest rates have started impacting household consumption, a big contributor to economic growth Is a demand slowdown already on us After all, in the last 15 months, RBI has gone hammer-and-repo; after taming inflationwith policy rate up 2.75% since March 2010moderation in growth was an expected, and intended, collateral damage. With growth in capital investmentsthe economys growth engine for the past few yearsalready grinding to a halt, is private household consumption that makes for almost 57% of GDP too headed for a quarter or two of slow growth

The opinion here, on consumer slowdown or not, seems to be sharply divided. The low growth numbers speak for themselves, say some. Surely, you cant read much from figures for a month or two, point out others. Let us examine these positions closely.

There are reports from umpteen analysts that say consumption growth will hold on, what with strong hiring sentiment, positive real wage growth, and near-normal monsoons. Ambit Capital Research maintains that inclusiveness and specific categories will keep the countrys consumer market growth at around 14% for the next three years. Bike sales, though off from their highs, have maintained to grow at a respectable 14% in June. And growth seeking multinationals have only emerging markets like India to turn in order to drum up sales, and their focus in these markets will ensure continued supply-side push, say people who believe everything is hunky-dory and dismiss all talk of demand moderation.

Well then there are those like Nomura and Crisil that say high inflation and high interest rates are surely hurting household budgets, and changing purchasing patterns. A recent Nomura reports says that starting with car and homes, demand sluggishness has become more widespread, something that corroborates with sales numbers for the past two months. High inflation, averaging 8% every year since 2008-09, has burdened the 221 million-odd households in the country with an additional expenditure of R5.8 lakh crore in the last three years, R3.8 lakh crore in 2010-11 itself, according to recent report by Crisil.

Yet another report, Winning Indian Consumer in 2011, released last fortnight by the Boston Consulting Group, say consumers plan to cut spending and opt for cheaper alternatives. And discount schemes and freebies are back in full-view in auto and property sector. Surely, that is not good news for marketers, who saw their top line and bottom line erode during the not-too-happy slowdown years of 2008-09 due to downtrading and bargain-hunting consumers.

Then there are those who believe that FMCG stocks touching lifetime highs of latea measure of their defensive nature as demand for everyday necessities like soap, tea and shampoo is relatively inelasticis a sign of the coming slowdown. No, it portends high growth in the category after good monsoons and strong rural demand, concur others. Are stretched valuations in the number of consumer goods stocks, in some case 50 times earnings, a sign of irrational exuberance by few investors or a continued lure of the India growth story powered by domestic consumption

So which way will the wind blow I, for one, is of the belief that surely we are in for a lean season, thanks to high inflation and high interest rates that have started eating into household budgets. The early warning signals on slowing car sales, apparel, expendables, electronics and houses, are hard to miss. Equally, the sellers reaction to it (discount schemes and freebies) and also the buyers (downtrading, postponing purchase and bargain-hunting). But all this is for the short-term, for the next three to six months. After all, with the lowest per capita consumption of just about everything in the world, from candies, cola, coolers to cars, in the mid- to long-term, there is only one way consumption will move in the country, up!