Consumer confidence low but see pick-up ahead, say experts

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Mah and Mah See previous management interviews See what other Experts & Brokerages are saying about Mah and Mah Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

CNBC-TV18, in association with Boston Analytics, today launched India's largest consumer confidence index. The Indian consumer is not feeling good - the CNBC-TV18 Boston Analytics Consumer Confidence Index drops 3% to 77.6 in February, the lowest level since January 2008.

 

The Current Consumer Confidence has fallen by about 5 ticks whereas the Future Expectations Confidence Index has fallen by les than 3 ticks. So clearly, the future is not as badly perceived by consumers as the current situation.

 

Also read: Feb CCI down at 77.6: Reasons for the decline  

 

V Ramachandran, Director - Marketing, LG, and Rajesh Jejurikar, COO, Automotive Sector, Mahindra & Mahindra , discuss the issue of consumer confidence.

 

Ramachandran said LG in particular has not witnessed a sharp fall in sales - the company's sales grew by about 20% in the last two months. "My sense is I see strong visibility at least up to June-July so far. There are more recent factors like the recent announcement on GDP, which came very recently. So, the implication and impact of this on consumer sentiment remains to be seen. But broadly we believe that a 12-15% growth at an industry level is certainly possible," he said.

 

Jejurikar said even as the consumer confidence is at an all-time low, there may signs of a turnaround. "A lot of people say that there is short-term buoyancy caused probably because of liquidity improving in the recent past, interest rates coming down, and the arrears of the Pay Commission coming in, which has brought in spending power or disposable income in," he said.

 

"However, if I was just to take the automotive industry, I would say clearly there is much greater growth at less-than-Rs 5 lakh price points than there is in the more-than-Rs 5 lakh price point," Jejurikar said.

 

Here is a verbatim transcript of V Ramachandran and Rajesh Jejurikar's exclusive interview on CNBC-TV18. Also watch the accompanying video.

 

Q: What has been the experience at LG? Have you noticed a sharp fall in sales or offtake for February? Do you want to put January and February in perspective?

 

V Ramachandran: Actually, January and February have been good for LG and also good for our industry generally. LG has grown by close to 20% in the last two months, which is a year-on-year (YoY) number. In our industry, the YoY number is more relevant as opposed to trends because there are seasonal purchase cycles that operate.

                          

Q: But this 20% compares with what kind of average growth number that you saw in 2008?

 

V Ramachandran: In 2008, overall for the year, we grew by around 15-16%. This 20% we are seeing for January and February.

 

Q: If you have to give us an idea of how you are looking at the coming two months or the next two quarters, would you expect to maintain this 20% growth?

 

V Ramachandran: We are targeting for an annual growth of around 15-16% from consumer electronics and household appliance categories. We expect to be able to deliver this growth. We are finding that consumption is still holding strong. This is what is supporting the durables industry.

 

Q: How is the consumer confidence from an M&M passenger car perspective?

 

Jejurikar: You just published the consumer confidence data and that clearly does indicate that consumer confidence is at the lowest in many years. So, I don't think there is anybody who can run away from that.

 

Even if we look at our own personal lives, all of us are into deferring purchases that we don't need to make right now. So, that is the reality of the situation.

 

Q: Is it about the price point, which means that people are still buying products worth about Rs 10,000-20,000. But automobile is a serious purchase and perhaps that is where the consumption is getting hurt?

 

Jejurikar: We have had a very good February. The auto sector brands have grown by about 21-21.5%. We recently had the Xylo launch. It starts at a price of about Rs 6.3 lakh upwards. We have had bookings of more than 8,000 vehicles. Our waiting time right now is about six-seven weeks in most places. We haven't opened up all the country; we have put caps on bookings in non-metro towns. In spite of all of that, this is the booking situation.

 

There is clearly something that is happening more than what one is able to see. A lot of people say that there is short-term buoyancy caused probably because of liquidity improving in the recent past, interest rates coming down, and the arrears of the Pay Commission coming in, which has brought in spending power or disposable income in.

 

So, I guess, one is seeing a turnaround. But if I was just to take the automotive industry, I would say clearly there is much greater growth at less-than-Rs 5 lakh price points than there is in the more-than-Rs 5 lakh price point. So, if your theory is on low unit price versus high unit price, people are probably willing to spend more on affordable things. But as you go higher up, you tend to be a little more risk averse.

 

Q: What is the experience of the general consumer durables sector that you would definitely be keeping in touch with? Would you say that 20% in January-February and say between 15-16% for the rest of the year is something the industry can deliver?

 

V Ramachandran: Just to go back to the earlier discussion, what we find is in the case of our categories mainly penetration is currently low and the need is very high for the consumer. There is now less of lifestyle and more of necessity. So, I think these are the factors that are supporting growth. I think these factors will remain going forward.

 

My sense is I see strong visibility at least up to June-July so far. There are more recent factors like the recent announcement on GDP, which came very recently. So, the implication and impact of this on consumer sentiment remains to be seen. But broadly we believe that a 12-15% growth at an industry level is certainly possible.