Rate cloud over festive fizz
Be it automobiles, electronics or property, the buying season consumer mood seems down this year. Sachin Dave and Rachit Vats report. Buyers' mood downbusiness Updated: Jul 30, 2011 02:00 IST
Ad film maker Sudipto Roy, 34, is in a fix. Roy has been saving for close to a year in pursuit of his first set of four wheels.
His mission turned difficult when he decided to buy a diesel car instead of a petrol one to exploit the rising differential cost of the two fuels, a choice that at one stroke made the purchase Rs 1 lakh dearer.
With the Reserve Bank raising interest rates steadily in its battle against inflation, like it did this week, car loan rates have been revised up 11 times in the past one year.
As a result Roy’s EMI (equated monthly instalment), if he buys the car today, for a Rs 4 lakh loan over a three-year period has gone up by more than Rs 1,000. And he is already nursing a home loan on which he is coughing up R5,000 a month.
“I have an aspiration to buy a car but I will have to wait for a few more months,” Roy says wryly.
The likes of him are making things difficult for car makers this year, and the festive season beginning in August and peaking in Diwali, usually considered the best for all sorts of consumer sales, is expected to be a difficult one for firms in the real estate, electronic goods and automobile sectors.
Every fourth car buyer in India also has an outstanding home loan. The roof often stands in the way of the car. Analysts say borrowing rates have crossed the psychological benchmark of 12%.
“I do not think festive season will bring much cheer,” said Mayank Pareek, managing executive officer (marketing and sales), Maruti Suzuki India Ltd. “If at all there will be a spike in October but it will not be enough to pull the industry out of the rut. There is a squeeze being felt from all sides and even rural markets is not growing that much.”
Compare that with 2010, when every carmaker was growing in high double digits. Growth is down to under 9% now.
It is a similar story in other consumer-centric sectors such as real estate and consumer durables. The festive sentiment is decidedly bearish and a delayed onset of monsoon rains, which can affect agricultural prices and disposable incomes for industrial goods, is also an extra factor.
The consumer electronics industry for example, which is estimated at around R35,000 crore in annual sales, is certainly feeling dampened. “There is a certain slowdown being experienced especially in the high-end products,” said Ravinder Zutshi, deputy managing director, Samsung India.
“We are seeing a little decline and it is too early to put a number to it. A certain mindset is developing and in general spending has come down across all categories. Onam will be a good window to measure the mood and check if this trend is here for a long time or not,” he said.
The festive season does not offer much hope to the likes of LG, Samsung, Godrej and Onida as well.
“We are anticipating a dip of 20 to 30% in demand and are planning on the conservative side,” said Kamal Nandi, vice-president, sales & marketing, appliances at Godrej Boyce. "Hopefully there will be some indication from Onam.”
The hardest hit would be real estate. Indian buyers prefer to buy property around Diwali, and developers often launch projects to match the mood. But not this year, it seems.
“We plan to launch two projects during Diwali as of now but the decision would be taken after analysing the situation at that time,” said an official at Mumbai’s Oberoi Developers.
Tituraj Govindraj, head of western region at property consulting firm CB Richard Ellis, said developers are giving flat 15% discounts to serious buyers, quietly, while there was “pressure on them to not launch projects early.”
The festive fizz is clearly down.