Jan 28, 2013, 03.36 PM IST | Source: Moneycontrol.com

India consumer mood worsens; low salary hikes seen: Survey

Indian consumers are more worried than they were a year back, according to brokerage firm Credit Suisse’s consumer survey, which shows a continuing decline in consumer optimism. Reasons: high inflation and a slowing economy.

Moneycontrol Bureau

Indian consumers are more worried than they were a year back, according to brokerage firm Credit Suisse's consumer survey, which shows a continuing decline in consumer optimism. Reasons: high inflation and a slowing economy.

"Compared to last year, more people expect lower salary increases and personal finances to worsen, making it a bad time for large-ticket purchases this time around. Only 5% of consumers we surveyed expect inflation to fall, clearly indicating that the Reserve Bank of India’s (RBI) worries over high inflation expectations becoming entrenched are not unfounded," Credit Suisse analysts Arnab Mitra and Akshay Saxena wrote in their report. More than 60 percent of the respondents think inflation will increase.

Confidence in the government waned, with only around 35 percent respondents believing that the government is effective in solving problems against 50% the year before. Also, consumers saved more than they did the previous year because of economic uncertainty, but a good chunk of it went into bank deposits and gold, the survey noted.

The findings of the Survey are in stark contrast to the upbeat mood in the stock market, where investors are betting that the government will be able to push through key economic reforms that will revive growth. Equity benchmarks Nifty and Sensex are quoting at two-year highs, propelled by a rush of foreign fund flows

Among other findings of the survey, preference for purchasing unbranded products again rose in 2012, as consumers tightened their purse strings.

"Even though more people continued to buy items, such as apparel, shoes, watches and perfumes, there was a fall in mean purchase values with consumers preferring to reduce discretionary spending in order to save more. Fewer people bought smartphones (though mobile penetration went up) and more now want to buy an entry level car. More consumers are also postponing major purchase decisions. This trend is reflected in the commentary of many companies who operate in discretionary consumption categories and are indicating a slowdown in growth rates.

Rural household, however are faring better than their urban counterparts.

"While the mean household income of urban India declined 3%, it increased 6% for rural India. Car penetration has stagnated in urban India, but doubled in the past two years in rural India," the survey noted, adding that strong rural performance would continue to support growth for Indian consumer companies.

The silver lining of the report is that ownership of cars, smartphones and electronic items is the lowest in India, compared to the other eight countries surveyed in the report. Indians are among the lowest consumers of items, such as beer, spirits, meat and cigarettes, and have the lowest access to the Internet, the survey said.

"India is building a solid base to capitalise on the demographic dividend that the country is expected to enjoy in the coming decades. This, combined with the greater participation of rural India and lower income categories (those at the bottom of pyramid), bodes well for India’s consumption story," the Credit Suisse survey said.

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