India’s slowdown is touching the untouchable

Shoppers Stop

05/11/2024 10:59

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Shritama Bose
       MUMBAI, Nov 5 (Reuters Breakingviews) - India's biggest
companies no longer offer a rose-tinted window onto the world's
fifth-largest economy. Shoppers have been tightening their purse
strings for years. Now the austerity is spreading from the rural
poor to the urban rich. That is the opposite of the recovery
story that was supposed to play out.  
    GDP is growing at 6.7% but the reality is that consumption
has been weak in India since at least 2020. Income growth is
anaemic: casual and regular workers in 2023 earned a monthly
wage 1% lower than in the previous year, per an International
Labour Organization report based on government data. For a
while, big companies that dominate the country's stock
benchmarks like the Nifty 50 Index  .NSEI  seemed well
insulated.
    The latest set of company earnings suggest otherwise.
Hindustan Unilever's  HLL.NS  net profit fell 2% year-on-year
for the three months ended September. Reliance Retail - a unit
of $215 billion Reliance Industries  RELI.NS  - reported a 1%
drop in revenue in the same quarter and shrank store space by 2%
from its June level; boss Mukesh Ambani's execution on strategy
looks as much of a problem as a softening economy. Shoppers Stop
 SHOP.NS , an upscale department store, logged its second
straight quarter in the red. The list goes on.
    The hope was always that the incomes of the poor who were
buying fewer biscuits would improve. Instead, urban demand is
showing weakness too - sales of fast-moving consumer goods
groups in cities are growing at nearly one-fifth of last year's
rate - just as rural sales inch up from a prolonged slump.
   India's festival season is usually a time people spend but
carmakers struggled to clear inventory in the run up to the
Diwali holiday last week: Revenue growth at Maruti Suzuki
 MRTI.NS , the country's top carmaker by sales, crawled at its
slowest pace in three years during the September quarter. Even
luxury marque BMW  BMWG.DE  is slashing prices; discounts could
get bigger going forward, the Times of India reported on Oct.
28, citing unnamed industry analysts.
   Nearly half of the top 100 listed firms that have reported
earnings for the September quarter missed estimates by more than
4%, the highest since March 2020, according to Venugopal Garre
and his colleagues at Bernstein. Garre says companies are not
acknowledging "the elephant in the room" and are hoping the
slowdown is a one-off anomaly. For the country's eye-wateringly
expensive equities - MSCI India is valued at more than 23 times
earnings - that sets up a lot of potential pain.
    Follow @ShritamaBose on X

    CONTEXT NEWS
    Diwali, a major holiday, was celebrated in India on Oct. 31
and Nov. 1.

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Graphic: Hindustan Unilever's volume growth has slowed    https://reut.rs/3YyFwBQ
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 (Editing by Una Galani and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  BOSE/ 
shritama.bose@thomsonreuters.com))