"Anecdotal data suggests retail sales (offline and online) rose during this festive season, but overall growth rates are slower," they said in a note. However, it believes that the upcoming wedding season in November and December might provide some relief and boost to these feeble festive sales.
Per the note, while festive demand remained steady in rural areas and tier-2 and tier-3 cities, metros and industrial demand were "weak," leading to "mixed" overall festive consumption trends.
"There are broadly two ways to assess the strength of festive demand. One is to sift through anecdotal evidence and compare trends with previous years. Another, in the case of 'hard' conventional data, is to aggregate economic activity across the September-December period and compare across years, which helps to iron out the 'date effect' on growth rates," it explained.
Nomura cited the Confederation of All India Traders (CAIT) expectations of retail sales growth, which are expected to slow down to 13.3% in 2024, as compared to 36.4% in the year before. On the 'hard' data front, the brokerage said incoming inputs are suggesting some stability, but there are fireworks.
Even though auto sales are up 14%, on the whole, passenger vehicles and MHCVs (medium and heavy commercial vehicles) have fared poorly in 2024 so far, it underlined.
Per Nomura, India is currently underway a cyclical growth slowdown, making the Reserve Bank of India's 7.2% real GDP growth estimate for FY25 "overly optimistic," denoting "rising downside risks" to its projections of 6.7% growth in ongoing FY25, and 6.8% in FY26.
Weak Urban Demand
Last week, the Finance Ministry also flagged a slowdown in urban demand. Other consumption indicators have also been softening lately, which include a slump in passenger vehicle sales and moderation in airline passenger traffic. Many FMCG companies have also flagged weak urban demand in the recent past."We believe this weakness in urban demand is likely to continue," Nomura said.
Recent data suggests that urban consumer goods volume dipped sharply from 10.1% in Q1 FY24 to a mere 2.8% in Q1 FY25. In fact, urban demand has been tapering down over the last 5 quarters in the country. Consequently, auto and housing sales in urban areas took a hit.
"Urban demand appears to moderate due to softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases," it added.
Per RBI's monthly economic review for September 2024, Nielsen IQ reported that FMCG sale volumes in rural areas jumped by 5.2% in Q1 FY25, as compared to 4% growth witnessed in the year-ago period. Even auto sales in rural areas inched up by 2% during the first half of FY24, largely led by a 7.4% increase in sales of 3-wheelers and a 4.9% rise in sales of passenger vehicles.
Nomura highlighted that the post-pandemic surge in pent-up demand has now faded, and coupled with tight monetary policy and the RBI's macroprudential crackdown on unsecured personal loan disbursal, it is likely to put brakes on the lending activities of both banks and NBFCs.
Going forward, potential risks from geopolitical tensions and high valuations in global markets could further impact household spending.