Spending patterns in rural area are much higher than urban India, finds Credit Suisse consumer survey
Spending patterns continue to show a big divergence between rural and urban India, with rural yet again seeing a much bigger improvement than urban India in almost all categories, observes Credit Suisse in a research note based on a consumer survey. More people in rural India saw their incomes increase last year and even more expect this trend to continue next year. Rural consumers are spending more, and penetration gaps between urban and rural India for discretionary items such as autos, branded goods and even monthly outgo on mobile connection have come down.
Despite the higher growth in spending in rural India, the fall in savings rate is more drastic in urban India, showing the effect of lower income increase and higher inflation on urban consumers, points out the research note. The comparison of urban and rural respondents is shown in the graphs below:
According to Credit Suisse, the declining trend of consumer optimism observed in the last two years shows some signs of improvement. More people believe this is a good time for making big-ticket purchases, and also expect inflation to decelerate.
According to the research note, faith in the government too has increased as more people believe it is effective in solving problems, possibly indicating better local governance by state governments. This is shown in the graph below:
Mean household income has also increased as shown in the graph below:
However, there are contrary indicators as well that make this minor recovery in optimism fragile; a larger proportion of the respondents expect personal finances to deteriorate and incomes to decline. Savings rate too has come down with increase in expenditure on items such as housing and education, partly contributed by high inflation. Many respondents believe that income will decline in the future as shown in the graph below:
On a positive note, Credit Suisse points out that there is also a reversal of the down-trading trend in discretionary items that was observed in last year's survey—a sign that declining growth in discretionary items may be bottoming out. However, Credit Suisse believes that it is still early to say whether the cycle has turned and things will pick up from here on.
Of the nine countries surveyed, ownership of cars, smartphones and electronic items is the lowest in India, according to the research note. Indians are among the lowest consumers of items such as spirits, meat and cigarettes. This, combined with the greater participation of rural India and lower-income categories, bodes well for India’s consumption story.
The top picks, notes Credit Suisse based on the survey, in the Indian consumption universe are ITC, Maruti, Page Industries, HDFC Bank, Kajaria and Emami. The following table gives Credit Suisse observations on the companies of interest:
While core inflation has moderated considerably, a resurfacing of inflation in primary articles has been observed in FY14, points out CARE Ratings
A major concern affecting the Indian economy has been inflation. Inflation for most part of FY12 and FY13 maintained an accelerating trend, with headline WPI (wholesale price index) inflation averaging 7.4% in FY13. While core inflation has moderated considerably, a resurfacing of inflation in primary articles has been observed in FY14, observes CARE Ratings in a research note on inflation. The report is based on the data for January 2014 (latest available period) for both WPI and CPI (consumer price index).
The problem with primary articles (particularly, food articles) inflation (35.7% share in inflation) is shown in the table below:
The break-up of primary articles and its contribution to inflation is given below:
Fuel and power, which is also big in its contribution to inflation is shown in detail below:
RBI (Reserve Bank of India) under its new leadership of Dr Raghuram Rajan has shown a clear preference to CPI inflation as an indicator to the problem. CARE Ratings has given the break-up for CPI inflation in the following table:
As shown in the table, more than half of CPI inflation comes from food, beverages and tobacco with a share of 56.4% in overall retail inflation.
Nifty will get even more skewed towards IT and consumer industries
Drug maker Ranbaxy Laboratories and Jaiprakash Associates are being moved out of NSE benchmark index, Nifty. Tech Mahindra and United Spirits will replace them in the 50-share index of the National Stock Exchange with effect from 28th March.
India Index Services & Products Ltd, an NSE-Crisil joint venture that maintains Nifty index, said in a statement that these changes would become effective from 28 March 2014.
After the changes the list of Nifty50 stocks will be:
According to the exchange, the stocks being excluded from Nifty Junior index are IDBI Bank, Tech Mahindra and United Spirits, while Bharti Infratel, ING Vysya Bank and Ranbaxy Laboratories would be included in the index.
In the CNX 100 index, Bharti Infratel and ING Vysya Bank would be replaced by IDBI Bank and Jaiprakash Associates.