Mumbai: Consumer durables firms are expecting a 10-20% increase in sales during the festive season from a year ago on the back of pent-up demand built in the run-up to the launch of the goods and services tax (GST), an uptick in rural demand owing to good monsoon and overall consumer confidence in the economy.
Most Indians consider it auspicious to purchase consumer durables, precious metals and jewellery and automobiles during the festive season—beginning late August and ending December this year.
The hike in central employees’ allowance and a rate cut by the monetary policy committee (MPC) in August are also influencing expectations. For instance, electronics retail store chain Vijay Sales expects a 20% year-on-year growth in sales, according to Nilesh Gupta, managing partner.
However, there are factors that may weigh on this optimism.
“Flooding in some states may reduce rural demand. In the urban sector, the information technology (IT) industry, a large formal sector employer, is witnessing jobless growth; therefore, there is muted optimism," said Ankur Bisen, senior vice-president, retail and consumer products, Technopak Advisors.
“Consumer durables have traditionally had a large cash component and the recent government scrutiny in this area will affect consumer behaviour negatively. Having said that, private consumption will increase as gross domestic product (GDP) grows," he added.
The companies’ sales expectations surely lead to the question of pricing, which looks tricky at the moment.
E-tailers Amazon India and Flipkart are looking to “ring up record sales" for the festive season, according to an Economic Times report, and are planning to offer “aggressive deals on exclusive brands". These brands have reportedly been asked to give up some of their margins, while the e-tailers may partly give up their commissions.
But brick-and-mortar retailers will not offer large discounts for various reasons, including GST.
“When regular checks were made on dealer channels, we found they weren’t receiving the GST benefits though the companies insisted they were being passed on, making them reluctant to cut prices. But the festive outlook is positive because we found that companies are pushing substantial inventory through these channels," said an analyst, on the condition of anonymity.
GST has also impacted manufacturers directly.
“There were lower realizations from the price since the tax burden was higher post-GST. We may hike prices in September-October," said Shekhar Bajaj, chairman and managing director, Bajaj Electricals Ltd.
Hardening metal prices are also squeezing margins, discouraging discounts, according to Kamal Nandi, business head and executive vice-president, Godrej and Boyce (Manufacturing) Co. Ltd. “A definitive view will be taken on 1 September," he added.