Consumer Is King

- John Maynard Keynes

By Haresh Soneji, CNBC-TV18

I agree 100% with John Maynard Keynes viewpoint - markets can remain irrational longer than you can remain solvent. But, lead indicators can help solve a lot of mystery. This is where a lead indicator based on consumer confidence provides a big clue. I firmly believe that consumer confidence is a very crucial indicator. Consumers' reluctance to buy necessity or discretionary items depends a lot on their confidence levels. Therefore, one has to read the consumer confidence behaviour very closely. Any signs of recovery or bounce in the economy will be led by this indicator.  

Having said that, this may sound like a plug, but India's largest index based on consumer confidence does not sound optimistic, as yet. The CNBC TV18 Boston Analytics Consumer Confidence Index for February stood at 77.6, a fall of 3% from January 2009's reading of 80. The index value for the month of February is the lowest since the inception of the index in January 2008. The index voices consumer behaviour in the present circumstances and in the time to come. The benchmark Sensex therefore closing at its lowest levels since Nov 2005 is not surprising. The consumers are not confident of spending. And, this is exactly the reason why we should not believe the stellar auto sales numbers for the month of February. Many questions have been raised on whether this is the inflexion point. But, the simple answer to this question is a big no. 

CNBC TV18 & Boston Analytics launched India's largest consumer confidence index on Tuesday. The index is designed to measure consumer confidence in India on a monthly basis. The index is derived from a monthly survey targeting nearly 10,000 respondents across fifteen Indian cities, which makes it the largest & most comprehensive exercise of this kind in the country. The index is a monthly barometer of the opinion of Indian consumers regarding the current state and future expectations of the macro economy, household financial conditions and consumption. The index is computed from responses to 25 questions covering various variables known to affect consumer confidence. These variables pertain to general economic conditions, employment, inflation, interest rates, real estate, household financial conditions, household income, spending plans, and savings.

CNBC TV18's Boston Analytics Consumer Confidence Index consists of two sub-indices - the Current Situations Index and the Future Expectations Index. Both these indices too dipped lower in Feb over Jan. While the Current Situations Index dropped 5.5% to 75.7 levels, the Future Sentiments Index dipped 2.9% to 77.8 levels. There are five derived segments too covering employment conditions, inflation, real estate, savings, and consumer spending.

The index, a leading indicator variable for tracking business cycles, has been showing a downward trend for the last twelve months (since March 2008). The Index is clearly telegraphing that the Indian consumer appears very concerned about his or her own household financial conditions and in the state of the general economy. February's decline in the index value is attributable to weaker spending plans, decreasing job security, reduced comfort in borrowing, and expectations of increases in interest rates.

Consumer confidence is low at this point in time. Declining job security appears to be the main concern. This may have affected their decision to reduce spending on necessities too. But, the future sentiments index seems to be flattening. Is this the beginning of optimism or just an aberration? Watch this space on our monthly consumer confidence index.

For a detailed analysis of the CNBC TV18 Boston Analytics Consumer Confidence Index read here.

  http://indiawatch.bostonanalytics.com/indiawatch/home.aspx

Disclosure: The author is not permitted to trade and/or invest into the equity market directly or indirectly, apart from investing (long only) in mutual fund products. His equity exposure is only to the extent of ESOPs granted by the employer.