Indian wines popular in the UK, but there’s a long way to go

Experts say the report about the popularity of some Indian wines in the UK is good news for the wine sector, but much more needs to be done to make Indian brands better known abroad

After two years of sluggish growth, the Indian wine industry seems to be on track again. In June wine sales jumped by 30% and now, according to a report in The Guardian newspaper published from London, two Indian wine brands, made from grapes grown in Maharashtra, are increasingly gaining popularity among wine lovers in the UK.

But wine experts say that though the news is good for the Indian wine sector, it has a long way to go before things improve and much more effort is needed.

UK's leading supermarket chain Waitrose Limited showcased two Indian wine brands, Zampa syrah 2008 (a red wine) and Ritu viognier 2010 (white wine), as part of its collection of unusual wines from around world. The report stated that these two brands were popular among wine lovers and were sold at a discounted price of £8.49 for the red wine and the white wine at £6.99.

A wine expert, who did not want to be named, told Moneylife that, "While the news is good for the wine sector, much of this is just hype. The prices of those wines are too high, which won't be sustained. Indian wines have to continue making effort mainly by taking part in wine-tasting festivals across the world through which we can establish a brand name. Last year, the Indian Grape Processing Board took part in London's International Wine Festival in the UK which reaped us some benefit."

He further explained, "To say a particular wine is good or bad, is a task. There are many parameters to judge it. If we want to be known in the international market, wine festivals are an ideal forum. People get a chance to taste the wine, which helps consumers to decide its quality."

Jagdish Holkar, president of the All India Wine Producers' Association, feels that there should be consistency in supplying Indian wines through export. "Previously, many Indian wine brands were exported to the UK. This news is a great achievement for our industry, which is relatively new, though we certainly need more efforts to make the world aware of our wines. We have a great export potential and our wines should be consistently supplied in the international market."

"We have a unique selling point, which is Indian food being served across the globe. And most Indian wines pair well with Indian food, so there is scope of large export."

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    Retail and FMCG still good prospects despite overall demand slowdown

    Indian domestic markets are more promising amidst the crisis in overseas equity markets. Therefore, investors should be prudent and adopt a wait-and-watch attitude in the equity market and not rush for the exit

    While the domestic economy appears to be in better shape than those of the developed countries, stubbornly high inflation and the consequent aggressive stance of the Reserve Bank of India (RBI) have raised the possibility of GDP (gross domestic product) growth being lower than 7%. Developed stock markets have seen value erosion of 12%, while Indian markets have tanked 10% in three months.

    According to brokerage firm IDFC, the demand scenario continues to be strong, with sectors like FMCG and retail clocking strong volume growth in the past three months. While some moderation is visible in certain segments of automobiles (the industry being an interest-rate sensitive category), demand for two-wheelers and LCVs (light commercial vehicles) remains healthy. There has been a sharp increase in deposit and lending rates, resulting in robust deposit mobilisation. Weak global demand has not adversely affected the Indian IT industry in its exports, as technology spending continues both in India and abroad.

    Concerns on account of government policy to control inflation include the tight monetary policy adopted by the apex bank (325 basis points hike in interest rates since March 2010) has increased cost of funds (State Bank of India's prime lending rate, or PLR, is at an all-time high of 14.75%), impacting credit growth and discretionary spending in the economy. On the fiscal front, lack of positive policy triggers from the government has slowed down investment spends.

    Moderation in commodity prices (likely on weak global demand outlook) and clarity on the interest rate cycle would be key triggers for Indian corporate entities for improvement in performance and consequently, earnings growth. When inflation declines and the RBI (Reserve Bank of India) lowers interest rates, it will be the trigger for improvement in sectors like infrastructure and capital goods, which in turn will kick-start the capex (capital expenditure) cycle.

    As we are still in a high interest regime, investments have slowed down in infrastructure (power, roads, etc) and capital goods as rising interest rates have increased funding costs and pressured project IRRs (internal rate of returns). IDFC believes that order inflows are likely to be dull in the next few quarters, which will impact earnings visibility in FY13 and drive an earnings downgrade cycle. Havells and Kalpataru are the top performers in the current context.

    Demand remains strong in the consumer goods sector with categories like shampoo, skincare, homecare and toothpaste continuing to see volume growth in the mid-teens, with no slowdown in rural or urban segments. Mature categories like soaps have slowed down to low single digits; but Hindustan Unilever and Godrej are still registering mid to high single-digit volume growth despite raising prices by high single digit levels. As a result, while revenue growth would sustain, margins would remain under pressure in the near term.

    In the IT sector, larger players like Infosys and Tata Consultancy Services are better placed to sail through the challenging times. IT spends typically react to any contraction or recovery in economic activity with a lag of 3-4 quarters and this could be the challenge for larger companies, if the downturn persists.

    In the real-estate sector, developers are willing to negotiate with genuine buyers though they are not reducing prices officially. Absorptions in NCR are also witnessing a slowdown, largely led by land acquisition issues in Noida/Greater Noida and sharp price appreciation in Gurgaon. While end-users are adopting a wait-and-watch strategy, investor interest is low due to limited upside potential in the value of properties. Meanwhile, demand in Bengaluru is steady, with moderate price appreciation. However, the trend is gradually shifting to high-end residential projects.

    IDFC expects prices to appreciate in the near term although a 15%-30% correction is required to drive absorptions in markets like Mumbai and Gurgaon.

    In the steel sector, a combination of cost support, supply flexibility and China's relative strength are set to arrest the sharp fall in steel prices. Therefore, while the risk of a financial collapse persists, IDFC expects that prices in all regions are now at levels that have strong support.

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    Onions continue to make consumers cry

    Experts say that the recent decision to lift the export ban will give no respite to consumers as retail prices might increase due to traders who continue to charge high rates for fatter margins

    After indefinite strikes by farmers and traders across Maharashtra against the decision to ban onion exports, the government has finally lifted the ban. The strikes were supported by political parties across the spectrum, but little has been done to bring down the prices at the retail market. Consumers continue to pay high prices due to traders and retailers who charge high prices for increasing their margins.

    After the ban was imposed on 9th September, onion prices moved up to Rs20-Rs22 per kg in Mumbai's retail market—from Rs10 kg just a week ago.

    Experts warn that retail prices might shoot up as retailers continue to charge high prices under the guise of an artificial scarcity and the excuse of the forthcoming festive season.

    RP Gupta, director, National Horticultural Research and Development Foundation (NHRDF) told Moneylife, "The decision was taken yesterday in the evening, so in two days' time, regular onion arrival will start. Considering the production, there shouldn't be a worry about price rise. But it is the retailer market where customers shell out high prices. Something should be done to regulate this market."

    He added, "The government can consider distributing onions and garlic in the retail market through co-operative societies or the public distribution system (PDS)."

    NHRDF monitors onion prices and market arrivals on a daily basis.

    The government had imposed a ban on onion exports to check spiralling prices which touched Rs25 a kg in the retail market in New Delhi. The Empowered Group of Ministers (EGoM) on Food fixed the Minimum Export Price (MEP) of onions at $475 per tonne.

    Ashok Walunj, director—onion-potato market of APMC, Vashi, said that prices will be stable in the wholesale market. "The wholesale price, Rs10-Rs11 per kg, will remain stable. It will further stabilise once the fresh early kharif production arrives in the market." When asked about the prices in the retail market, he said, "The retailers are not in our control. So we have no say in the prices charged by them."

    The current wholesale onion price in Mumbai is around Rs10-Rs11/kg, while in retail markets, it is at Rs18-Rs22/kg, depending on the produce.

    Consumers have to continue with their tight household budget. "I keep reading there is a record production of onion, there is good monsoon, or some or the other political party demanding fair price for farmers. Farmers should be given a good price, but as a consumer, I keep paying the same price even despite all this news. In fact, it is always that I have to pay extra," said Sangeeta Jadhav, a homemaker.  

    A trader based in the Vashi wholesale market said, "After the decision, prices might just go down for a week or so—and it will again come back to the current level. Prices are bound to be in the same range and might even inch up given the festive season. However, this decision will help farmers, who sell it at a good export price."

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