Samsung deputy managing director Ravinder Zutshi says it is a “bit of a struggle” this year. General Motors vice-president P Balendran is less diplomatic and talks about a “severe blow”. And, real estate consultancy Knight Frank’s chairman Pranay Vakil sees “no respite” for developers.
What the three gentlemen — who represent large business segments that bank on festive season sales to account for the bulk of their annual numbers — are saying is this: While the festive season has come, the cheer is clearly missing, thanks to high inflation and interest rates.
Sample this: Consumer durables firms have lowered sales growth estimates to 25-30 per cent this festive season vis-a-vis 40 per cent last year. The consensus is the comedown is on account of the visible slowing in industry, thanks to weak consumer sentiment.
According to Rajeev Jain, managing director, Bajaj Finance, the largest consumer durables financier in India, the latest Index of Industrial Production numbers are an indirect indicator of consumer demand. “If demand is good, it tends to show in better output numbers. The fact that output growth has been lower this year indicates consumer demand is not too strong,” he says.
Shantanu Dasgupta, vice-president, corporate affairs & strategy, South Asia, at Whirlpool, India, agrees: “While consumers will make purchases this year around the festive period, it is likely to be a little less buoyant than last year.”
The country’s largest consumer durables maker, LG, cautions much depends on how much bonus salaried people get this year.
“That goes a long way in determining how much they are ready to spend. While we expect the festive period to be good, these factors would have to be borne in mind,” says Y V Verma, chief operating officer, LG India. The trend is the same across sectors such as automobiles, real estate and retail.
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Sales of passenger cars declined 16 per cent in July and 10 per cent in August, compelling makers to deepen discounts to bring back footfalls and increase conversion rates.
Most are expecting sales growth to be in the region of five per cent versus 20 per cent last year. Neeraj Garg, member of the board and director (passenger cars), Volkswagen India, says, “After seeing the market shrink in July and August this year, we decided to continue with our incentive schemes. We have a bouquet offer in which customers purchasing petrol variants of Polo and Vento can opt for extended warranty on vehicles, insurance packages or accessories valued up to Rs 40,000.”
Companies such as General Motors and Volkswagen have launched offers ranging from cash discounts to free insurance and maintenance schemes. Others such as Honda Siel and Skoda have attractive financing options on best-selling models to lure customers.
The discounts that firms are offering are also substantial this festive -- something normally reserved for end-of-the-year sales. Maruti, for instance, is offering Rs 15,000-30,000 in discounts on various car brands. Fiat is offering a whopping Rs 1 lakh in discounts.
In the last five months, there have been two petrol price hikes, while diesel prices have been raised once during the period.
While this has led to a shift in preference for diesel cars, overall inflationary pressures haven't augured well for consumers. The share of the wallet has shrunk further, say industry experts.
General inflation has hovered in the region of nine to 10 per cent, while lending rates have moved up more than 250 basis points on the back of a repo rate hike of 350 basis points since March last year.
The pain, according to industry sources, is unlikely to ease with the RBI looking to hike rates again in October.
Real estate developers are nervous about the impact of inflation and interest costs. According to PropEquity, a realty research firm, the number of houses sold and registered in Mumbai has come down from 6,300 units in August 2010 to 4,500 in August 2011, a decline of 28.5 per cent. The trend has been no different in the past few months, with buyers staying away.
Experts caution buyers are unlikely to flock the markets soon. The October to February period, which has many festivals including Navratri, Diwali and Christmas, accounts for more than 60 per cent of property sales as buying is considered auspicious. But, with buyers staying away, developers are unlikely to be happy this festive season.