Inflation, slow growth dents Indian consumer optimism: Credit Suisse

At a time when the global equity markets, including India, have seen a steady rise since the past one year, high inflation and slower growth continues to worry Indian consumers with people expecting lower salary increases, says a recent India Consumer Survey 2013 by Credit Suisse.

The Credit Suisse Research Institute engaged market research firm Nielsen to conduct interviews with over 14,000 consumers across eight emerging economies.

Findings suggest amid rising food prices and weaker global growth, confidence among emerging market consumers has strengthened over the last year. Of all participants, 37 per cent believe their personal finances will improve over the next six months, while 9 per cent expect some deterioration, the Emerging Consumer Survey 2013 says.

However, the survey casts a spotlight on the striking contrasts across the emerging world. The outlook for and the distribution of income has replaced the influence of food prices as the determinant of optimism.

Of the eight countries, including India that form part of the Consumer Survey, optimism on the financial outlook was found to be the strongest in Brazil, China, Indonesia and Saudi Arabia. At the other end of the scale, the greatest degree of pessimism in financial prospects was recorded in South Africa, Russia and Turkey.

Indian Perspective

Findings suggest that over 60 per cent of respondents expected inflation to increase further and just about 5 per cent expected it to come down in the next 12 months. Not surprisingly, the central bank in India has been very cautious on cutting interest rates.

In the Indian context, 2,602 respondents across 10 cities and rural areas were interviewed. Of this, around 30 per cent respondents saw salary hikes in 2012 though the quantum of wage hikes dipped. This is in contrast with countries like Indonesia, where the increase in minimum wages is likely to keep consumer sentiment robust; and in China, where sentiment remains strong on the back of purchases by consumers from lower income groups.

“Confidence levels are back to 2010 levels in China, have reached three-year highs in Indonesia and slipped in India. 42 per cent of Asian consumers surveyed believe their own personal finances will be better over the next six months. This compares to 40 per cent 12 months ago and 34 per cent for the other emerging markets surveyed,” the Asia Emerging Consumer Survey 2013 states.

Spending Pattern

As a result, fewer Indians feel this is a good time to make a major purchase. The number fell from 73 per cent in 2010 to 66 per cent in 2011 and 59 per cent in 2012. “There are now instances of buying / upgrade decisions being postponed as people cut down on lavish spending because of the economic uncertainty. While two years ago Indians were highly confident about their personal finances, past two years have seen a significant deterioration,” the findings suggest.

The most notable changes in the overall spending trend were an increase in food spending and reduction in education and housing spending.

Confidence in the government is also waning, the report says, with only around 35 per cent respondents believing that it is effective in solving problems against around 50 per cent the year before.

Consumers remained extremely risk averse, and keenness to invest in the stock market remained low with just around 4 per cent respondents trading in the stock market. Preference towards gold and insurance is increasing, while bank account savings remained steady, the report says.

While the mean household income of urban India declined 3 per cent, it increased 6 per cent for rural India. India is building a solid base to capitalise on the demographic dividend that the country is expected to enjoy in the coming decades. This, combined with the greater participation of rural India and lower income categories, bodes well for India’s consumption story, the survey says.

Credit Suisse Research advises investors to buy brands and market leaders in their respective segments with ITC, Bajaj Auto, Titan Industries, HDFC Bank and Emami being their top picks in the Indian consumption universe.