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Finally, an uptick

The festival season, starting with Dussehra and continuing till the New Year, is usually boom time for retailers and manufacturers alike. Everything from cars to consumer durables, clothes to mobile phones is in demand. This year, there’s even greater hope riding the festive season, businesses are fervently hoping that demand will pick up, people will spend and hopefully set a happy momentum that will put the economy on the path of a robust recovery. At the very least, businesses are hoping to recover losses incurred during the lockdown, and possibly, earn enough to sustain themselves through the traditionally low-demand months that follow.


A view of the central a trium of DLF Promenade Mall in New Delhi. Photo: Chandradeep Kumar

There is reason to be hopeful. Many industry professionals that india today spoke to say consumer demand has returned, to varying degrees in different sectors, in September and October, and that this holds out hope for the rest of the festive season. This is not to discount the fact that the Indian economy is in dire straits, most estimates project growth falling nearly 10 per cent this fiscal year. However, a good performance in the festive season could soften the blow and aid a faster recovery.

With most parts of the country now reopening after a series of total and partial lockdowns since March 25, the Indian retail sector, pegged at $950 billion (Rs 70 lakh crore) and employing 40-60 million people, is seeing green shoots of recovery. Except in centrally air-conditioned malls, where footfall is low, most retailers are reporting improved sales. Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), which represents about 500,000 stores in organised retail, says the sector has seen a progressive improvement in sales over the past four months, June saw sales at 40 per cent of the figure for the same month last year, with the following three months seeing that number improve to 50 per cent, 60 per cent and 70 per cent. Rajagopalan says a similar trend is being seen in the unorganised sector as well, and that certain segments, such as electronics and mobile phones, are doing better than others. “One [feature of] festive season sales is that people buy not only for themselves, but also gifts for others,” he says, arguing that the festival season could see a much-needed demand boost. However, he adds a note of caution. “This does not mean retailers are out of the woods, many are wary of stocking too much.”


Even as retailers hope for a rebound, a note of caution marks their optimism. This stems from fears of a ‘second wave’ of Covid-19 cases, as seen in many European countries, forcing new rounds of curfews and lockdowns. In India, the number of new Covid cases per day appears to be falling, with about 50,000 cases reported on October 24, one of the lowest daily totals since July 28. But with the onset of winter, there is a possibility of that trend reversing, which could lead to more lockdowns and another sales slump. Moreover, vaccines for the disease are still under development, and may not be available till next year. Even so, analysts and industry leaders across sectors cautiously report positive developments.

In the automotive sector, R.C. Bhargava, chairman of Maruti Suzuki, India’s largest car manufacturer, says, “Going by retail numbers, sales are definitely [improving].” Maruti Suzuki saw a 30 per cent year-on-year increase in sales in September, selling 160,442 units that month compared to only 122,640 units a year ago. Bajaj Auto, a major two-wheeler manufacturer, saw a 10 per cent year-on-year sales increase in September, from 402,035 units in that month last year to 441,306 units this year. The numbers for other automotive manufacturers are more modest. Hyundai Motor India’s sales in September increased only by 3.8 per cent year-on-year, rising to 59,913 units from 57,705 units in September 2019. However, Bhargava adds a caveat for comparisons in October: last year, both Dussehra and Diwali were in October. This year, the festival season extends over several weeks, as Diwali is in mid-November; therefore, the sales numbers for October are not exactly comparable with those of the same month last year. Even so, on a positive note, media reports suggest auto makers will produce 330,000-340,000 cars in October, the highest monthly output since January 2019.

There are several reasons analysts expect auto companies to see improved performance in the festival season. Suman Chowdhury, chief analytical officer at Acuite Ratings and Research, says these include an increased preference for private vehicles because of the pandemic, an improved demand environment in rural and semi-urban areas and increased stocking by dealers in expectation of higher sales due to pent-up demand. Another potential boost to demand comes from the Centre’s LTC (leave travel concession) cash voucher scheme. “The LTC scheme includes [benefits for] automobile [purchases], and we hope this further improves sales,” says Bhargava.

The e-commerce sector, which had already seen robust sales during the pandemic as a result of people preferring to buy essentials online rather than physically visit shops, has seen a further growth over the past few months. Online sales festivals by Amazon, Flipkart and Snapdeal, where deep discounts were on offer, received a strong response in the October 15-19 period. According to estimates by RedSeer Consulting, an online sales tracking firm, e-tailers saw about $3.1 billion (Rs 23,000 crore) worth of goods being sold in the first 4.5 days of this period. This is about 77 per cent of what the consulting firm had projected for the first round of the festive season.


The real estate sector, on the other hand, valued at Rs 8.8 lakh crore, has struggled during the pandemic. While there has been an uptick in property purchases in some of the larger real estate markets over the past two months, it is too early to say that buyers are returning to the market. Niranjan Hiranandani, founder and MD of the Hiranandani Group, highlights the role of structural factors: “Interest rates on home loans are down to 6.9 per cent, and that has helped sales.” In Maharashtra, property registrations got a further boost from a reduction in stamp duty announced by the state government, in end-August, stamp duty was cut by three per cent on transactions between September 1 and December 31, and two per cent between January 1 and March 31. This appears to have had some effect, property registrations in September rose 26 per cent to 240,333, compared to the same month the previous year, according to media reports. In October, until the 20th of the month, there were 168,852 registrations, 87 per cent of the number in the same month last year.

According to a report by PropTiger, the third quarter of calendar year 2020 saw an 85 per cent increase in home sales, rising to 35,132 units, compared to the second quarter, in the top eight cities, the Mumbai Metropolitan Region (MMR), the National Capital Region, Hyderabad, Bengaluru, Kolkata, Ahmedabad, Chennai and Pune. However, compared to July-September 2019, sales during the quarter fell 57 per cent, which indicates that the real estate sector is still in a precarious position. “The sector has always had its ups and downs,” says Hiranandani. “However, the lockdown has extended its woes.”

The travel and tourism sector, among the worst-hit by the pandemic, is struggling to regain its footing. For the winter schedule starting end-October, the DGCA (Directorate General of Civil Aviation) has approved 12,983 domestic flights a week, 55 per cent of the number for last year’s winter season. Airlines are currently allowed to operate 60 per cent of their pre-Covid flights, which may be scaled up to 75 per cent around Diwali (mid-November). Nishant Pitti, CEO of easemytrip.com, a travel portal, says that air travel has reached 65-68 per cent of pre-Covid levels, and may touch 75-78 per cent over the next 30 to 45 days. The hospitality sector is seeing healthy enquiry numbers as well, especially from those seeking weekend getaways. S.P. Jain, founder and chairman of Pride Hotels, has said that demand at resorts is up during the weekends, with room occupancy numbers as high as 80 per cent. Also aiding this is a 20-25 per cent reduction in room tariffs compared to the pre-Covid days.

In the FMCG (fast moving consumer goods) sector, firms did well during the pandemic by beefing up supply of essential goods and focusing on sales in rural areas. They have also gained in the latest quarter; for instance, Hindustan Unilever reported a nine per cent increase in its second-quarter net profit to Rs 2,009 crore on the back of higher rural sales. ITC, another large FMCG company, has said it has not seen a slowdown in food spends, be it in the ready-to-eat, staples, biscuits or snacks segments. Hemant Malik, CEO of its food division, has reportedly said that business is growing in the double digits.


Shoppers at Bhadra Fort market , Ahmedabad

Keeping it going

While many sectors report positive trends, a major question is how sustainable this demand is. Experts say this depends on a host of factors. For instance, a revival in real estate, as in all other sectors, depends on the country not going into lockdown once more. Progress also depends on policy decisions by the central and state governments, for instance, Hiranandani says the Maharashtra government’s reduction of stamp duty is a measure that other states could follow. Much also depends on how the government addresses issues like credit availability, this heavily affects real estate, since the NBFC (non-banking financial company) sector has been in crisis mode since the IL&FS debacle in 2018. In the fourth quarter of fiscal 2020, loans sanctioned by NBFCs fell 15 per cent compared to the year-ago period, as per data released by the Finance Industry Development Council in July this year.

The automotive industry, on the other hand, does not want to look too far into the future. “We are now focused on November,” says Deepak Jain, CMD of Lumax Industries and president of the Automotive Component Manufacturers Association (ACMA). He says there is a buzz of activity on the shop floors of ACMA’s member firms as they work at 100 per cent capacity. “Challenges still exist. Factories have to maintain physical distance on the shop floor, there is always a risk of Covid cases, which can impact production,” he says. Moreover, the festive season also means fewer working days. Factors like these put pressure on the automotive supply chain. “The litmus test for the industry will come after Diwali,” he adds.

December also traditionally sees higher auto sales as companies offer big discounts to clear inventories. “The real question is how the industry will perform in the January-March quarter of this fiscal,” says Bhargava. “We are not making any forecasts.” He also says a lot depends on the quantum of fiscal stimulus the Centre plans to inject into the economy. If a vaccine is developed soon, it will have a big impact on buying sentiment, not just in automotives but across all categories of goods and services.

On a sombre note, Madan Sabnavis, chief economist with Care Ratings, says ratings firms had already factored in the improved business prospects of the festive season when making GDP growth forecasts for the fiscal year. “There is indeed a recovery,” he says, “but that is coming from the unlocking of businesses after the lockdown was lifted. It should not be confused with a real revival in demand.” He also says it is unrealistic to expect a V-shaped recovery or a sharp rebound. Asked if there is something the Centre could do to revive demand in the short term, he says it would be a case of “too little, too late”. Had the government taken such steps some three months ago, it could have expected to see some results by October. Even so, the government should not miss out on an opportunity to give consumer spending a push through further stimulus measures to help the economy rebound.