Consumers and companies are confident

Even in the depths of a downturn, Indian consumers and companies are surprisingly confident, putting the country on top.

Seven months ago, the strategist reported that consumer confidence in India had fallen 11 points to 122, the lowest in the last five rounds of the Nielsen Global Consumer Confidence Survey. India had ceded its position of the most optimistic nation to Norway. Since then, Lehman Brothers, the 158-year-old investment bank, has collapsed and the Detroit carmakers have been gasping for money. Still worse, in end-November, 10 gun-and-grenade-totting terrorists killed 192 people across Mumbai, the nation’s financial capital.

Even as all these events sink in, India has topped the latest round of the Nielsen survey with 114 points, a massive 30 points above the global average of 84. But creditable though it may be, happy it is not. The global average itself has fallen four points since June. Norway has fallen from number one to number five, shedding 19 points. Denmark and Indonesia, which tied for the third place in the last survey, are second and third this time, but have fallen eight and 10 points, respectively.

In 43 of 52 markets, there has been a drop in consumer confidence when compared with the first half of 2008. Still, apparently Indians are not cowering in the face of the financial crisis. In fact, the country is bubbling with so much optimism that 51 per cent of those surveyed believe they will be out of the recession in 12 months.

Companies, too, across the board are denying any cutbacks from consumers. Either that, or they’re finding it hard to come to terms with the current scenario. Some are throwing up numbers to support their claims.

“At both Big Bazaar and ezone, we’ve seen good growth of about 25 to 30 per cent on a same-store basis,” says Manoj Kumar, chief executive officer of Future Group’s ezone. What’s more, he says more expensive goods like LCD televisions and laptops are showing higher growth than their cheaper stable mates. Kumar, however, admits that sales in November were less brisk.

V Ramachandran , LG Electronics’ sales and marketing director, believes the durable category has held on. “We have not witnessed any pressure so far. In fact the festival period saw a growth of 40-50 per cent,” he explains. All this is in conflict with the Index of Industrial Production, a prime indicator of the economy, which shows that consumer durable goods slipped about 3 per cent in December.

Slightly tempered in optimism, yet not completely lacking in it, is Maruti Suzuki India, which makes one of every two cars sold in the country. Its sales tumbled almost 25 per cent in November. “We’ve seen four distinct phases in 2008. April to June went okay; August to October saw some weakening. Then October was huge, with the highest ever retail sales. Then again November sales dropped only to again rise in December,” says Mayank Pareek, executive officer, marketing and sales.

He is quick to add that the company got 44 per cent higher inquiries in Decem­ber compared to the same period last year. “For us, conversion is the issue. People are willing to spend, but aren’t getting loans. Luckily, with the government’s recent initiatives, we expect reasonable wholesale sales as well,” he adds.

Fast-moving consumer goods, or FMCG, players meanwhile are feeling more or less insulated from all this talk of downturn. Marico’s chief executive officer-consumer products, Saugata Gupta, says, “Consumers are restraining spending on top-end durables and cars. In our categories, we’ve seen no drop.” Still, Gupta is wary of creating new categories and admits to seeing some down-trading even in FMCG. He admits to a slight dip in the sales of his cooking oil brand, Saffola.

Given all of the above, one would imagine that we’re a people really living it up, right? Wrong! In the last leg, India was the seventh most optimistic nation in terms of spending; this time, the country didn’t even make it to the list. On the contrary, Indians are eighth likeliest to put their money into savings, something that wasn’t a priority six months ago. Understandably, even our investments in shares and mutual funds are down six points. Similarly, spending on retirement funds has dipped 2 points. Thus, it’s safe to assume that when the final tally is in, Indian consumers have one eye on their wallets and the other scouting stores.

And that’s not all. Indians have a fair share of concerns this time. We may not be really perturbed by the recession, but, ever the obedient nation, we’re the sixth most concerned when it comes to parents’ welfare and happiness, and we’re concerned about tolerance towards different religions. Not surprisingly, India is the most worried nation over terrorism, which also happens to be a big worry for Pakistan.

Savings save Indians

Amidst the prevailing gloom over the jobs scenario, India offers a beacon of hope, according to the latest Nielsen Global Consumer Confidence Study. The survey is the largest bi-annual study of its kind, covering more than 26,000 internet users in 52 countries.

Sixteen per cent of those polled in the country think it is an excellent time for jobs, while 59 per cent feel it’s a good time. Consequently, the respondents’ perception of personal finances is just as glowing, as India topped the list as the most optimistic with 77 per cent; 9 per cent of Indians think it’s an excellent time while 68 per cent opine it’s a good time.

Meanwhile, internet users’ perception of personal finances in Japan was the most pessimistic at 91 per cent, up 12 percentage points higher than the June 2008 round. In keeping with the negative sentiment, 38 out of 52 countries are pessimistic about the economic situation in their country in the second half of 2008 with 63 per cent of the respondents saying that they believe they are in recession. Only three countries think they will be out of the economic recession in the next 12 months: China, India and Vietnam.

Absolute numbers have come down in India. Six months ago, 26 per cent thought it was an excellent time for jobs while 60 per cent said it was a good time. On the personal finance front, things are down by two percentage points. A report released by jobs portal Naukri.com states the overall job index in October 2008 was 781 as against 1,000 in July 2008. That’s a decline of a whopping 21.9 per cent. Shiv Agarwal, the chief executive of ABC Consultants, agrees. “It’s not as bad as the United States, but the numbers are down with many sectors retrenching or holding hiring.”

The most palpable of all fears is the one that has stricken business schools. “I know many firms are not going to B-schools this year. Even if some are, they have drastically reduced the number they are hiring,” says Gangapriya Chakraverti of Mercer.

Some say students are scrambling for internship offers. “Salaries are lower, offers are lesser and companies are fewer,” says a student from a prestigious B-school.

Prafulla Agnihotri, chairman, career development and placement, at IIM Calcutta, says, “It’s going to be difficult, as many American and European companies may not come this year.” He is relying on the public sector thanks to the sixth Pay Commissions boost to salaries. But Mercer is not very optimistic on the salaries front. “In April 2008, we predicted that 2009 will see a salary growth of 14.6 per cent, in October we revised that with a drop of 2 percentage points,” says Chakraverti. The spokesperson for Indian School of Business agrees that the coming placements season will be challenging.

Still, while the rest of the world may be living from paycheque to paycheque, 58 per cent of Indian respondents said they were in the saving mode, though one percentage point less than in the last survey. Indians have gone a step further and slashed spending on holidays and vacations by 10 points. Spending on new clothes and out-of-home entertainment has dropped two and eight points, respectively. But not much has changed with regard to paying off debts, credit cards and loans.

Make saving your resolution

Saving continues to be a high priority in these times of uncertainties. Both globally and in Asia more consumers prefer to save their spare cash than to spend. While 46 per cent of global consumers claim they put their spare cash in savings, in the Asia-Pacific the figure is a high 58 per cent.

Hong Kong leads the pack with 74 per cent consumers putting their spare cash in savings, up 11 percentage points in the last six months, followed by Singapore (70 per cent, up one percentage point) and Indonesia (68 per cent, up seven percentage points).

In India, too, savings remains the biggest priority, with 58 per cent consumers preferring to save their spare cash, almost the same as six months ago. Despite the financial turmoil, investing in markets remains the next major priority for Indians — 42 per cent choose to invest in shares and mutual funds, though the figure has dropped six percentage points in six months. The Chinese, however, continue to lead the charge here — 50 per cent still believe shares are the best place to invest — the figure has dropped a mere 2 percentage points from six months ago.

The downturn is likely to have a serious impact on lifestyle and the way of life in many parts of the world. Globally, the retail clothing sector may be among the hardest hit, as one in two global consumers say they’ll cut back on buying new clothes, while 40 per cent of global consumers plan to delay mobile phone or laptop technology upgrades, also suggesting a tough 2009 for the personal technology sector.

In this environment, “staying in” has become the new “going out.” Almost half (47 per cent) of global consumers will cut back on out-of-home entertainment and one in three will switch to cheaper grocery brands. In the US, more than half are cutting down on out-of-home entertainment, and the changes going even farther in France, where consumers plan to cut back on their consumption of meat and wine — the mainstays of their cuisine — and 37 per cent will also cut back on at-home entertainment, an integral part of the French lifestyle.

Globally, three in five (62 per cent) consumers described their state of personal finances as “not so good/bad” — a clear indication that all these budget cutbacks and lifestyle changes are increasingly involuntary. According to the Nielsen survey, 25 per cent of French consumers said they had no spare cash after paying basic living expenses, up from 17 per cent in six months ago. One in five US consumers is in the same position, as are 28 per cent of Portuguese, and 21 per cent in the UK.

Of the consumers who do have spare cash left after paying basic expenses, cultural differences are stark in terms of how that money is spent. While 70 per cent of Russians and 47 per cent of Portuguese spend extra money on new clothes, 45 per cent of Brazilians and Swiss spend extra cash on entertaining outside the home, and 53 per cent of Chinese plan to direct extra cash into holidays and vacations.

Hoping for recovery

One-fifth of global consumers reported that the economy is their number one concern, followed by food prices, except in the US, where fuel prices are even more of a concern than food prices. In the Asia Pacific, too, while the economy is the biggest concern (19 per cent), people appeared to be worried about the discrepancy between work-related demands and the quality of life, with work-life balance (13 per cent) being the second biggest concern.

With companies shutting down or downsizing significantly, job security (12 per cent) is the next biggest concern, followed by food prices in the fourth spot (11 per cent). In India, the economy and terrorism are the biggest concerns (both at 14 per cent), followed by work-life balance (13 per cent). Globally, increasing utility bills, fuel prices and debts appear to be bigger concerns than crime, terrorism, global warming and war.

While the world remains firmly trapped in a severe credit crisis, consumers in the world’s fastest-developing countries believe the global recession will be over within a year. Despite being affected by the current global conditions, consumers in large developing markets view their medium-to-long-term prospects as strong.

More consumers in India (51 per cent), Vietnam (45 per cent), China (34 per cent) and Russia (31 cent) expect the global recession to end within the next 12 months as compared with the other markets surveyed. One in two Indians believes the local economy will continue to show good growth, and that the global recession will have limited impact on their buoyant domestic market.