(FE)
The weak volume growth reported by consumer staple companies in Q4, FY19 underlines the slowdown seen in housing over the past five to six years and automobiles over the past year. The next government may have its task cut out to revive flagging economic growth. We believe a combination of monetary stimulus and structural reforms may help revive growth over time. The current slowdown may not be a mere cyclical one, as is generally believed.
An analysis of macro (household savings data) and micro (sector and company volume data) suggests that households may have gradually reduced consumption due to insufficient income growth. In our view, lower property purchases by households over FY2013-18 (as can be seen in household physical savings), sustained consumption (household physical savings rate partly replaced by consumption) for the past few years before possible low household income growth sapped consumption also, as can be seen in the current slowdown in demand for both discretionary items and staples, could be a reason.
We note that housing demand has been weak for the past several years and property prices broadly stable. The overall expenditure (savings) on residential real estate is down meaningfully, which is amplified as a larger decline in household physical savings rate in national savings data as the base (nominal GDP) has grown over this period. Auto sales volumes saw a slowdown from 2HFY19 and general consumption (at least based on volumes of consumer staple companies) from Q4FY19.
