After Months of Slowdown, Consumer Demand Rebounds in Oct–Dec on GST Cuts, Softer Inflation
The consumer demand landscape has seen a significant turnaround in the October-December quarter, following an extended period of more than 10 quarters of tepid sales growth. This resurgence can be attributed to a combination of outsized cuts in the Goods and Services Tax (GST), easing inflation, and an overall boost in consumer sentiment.
Key Insights on Consumer Demand Recovery
– Diverse Product Categories: Demand for various consumer goods, including electronics, groceries, and lifestyle products, has rebounded sharply.
– Impact of GST Reductions: The substantial cuts in GST, effective from September 22 last year, have represented the largest reform in consumption tax since its introduction in 2017.
– Sales Increases:
– Air-Conditioners and TVs: Volume sales surged by approximately 7-8% year-on-year after two consecutive quarters of decline.
– Refrigerators and Washing Machines: These products saw growth rates of 5-6%, indicating a revitalized retail environment.
Boost from Winter Stocking
Retail performances showed promising growth, with Blue Star managing director B. Thiagarajan noting a notable sales pickup after a couple of weak quarters. He pointed out that despite retailers exercising caution and not stocking heavily for summer, unsold inventory levels have decreased significantly.
Early Signs of Revival in FMCG
– Dabur’s Perspective: In its investor update, Dabur mentioned improvements in demand, particularly in October, where focus was on liquidating higher-priced inventory. The revival extended to both urban and rural markets, with rural demand notably outperforming urban areas.
– Retail Growth Rates: Orders from local stores grew by 6.9% in the December quarter, significantly higher than the 3.1% growth witnessed a year prior, according to Bizom data.
Optimistic Outlook for Future Consumption
– Marico’s Performance: The consumer goods company reported high single-digit volume growth year-on-year, projecting that easing inflation and lower GST rates will foster further improvements in future quarters.
– Market Recovery: After a prolonged period of muted expansion, organized retail sectors experienced a resurgence, with clothing, footwear, beauty, and quick-service restaurants observing double-digit growth for the first time in nearly 20 months.
Price Factors and Challenges Ahead
Despite promising recovery signals, concerns remain regarding rising prices, particularly in the electronics sector. Counterpoint Research noted that smartphone sales, which had jumped 12% during the festive season, faced a setback in November and December, attributed to price increases of 5-15%.
Conclusion: A Positive Turn in Consumer Demand
The surge in consumer demand during the October-December quarter highlights a notable recovery trend, primarily fueled by GST cuts and softened inflation. While challenges such as rising prices in certain sectors exist, the general outlook for consumer spending remains optimistic, suggesting a gradual improvement in consumption patterns in the forthcoming quarters.