Hurry, limited January offer

Hurry, limited January offer

Richard Thaler of the University of Chicago has highlighted the “January effect" in securities markets—an anomaly which results in consistently higher returns to investors for January, compared with other months. Equally interesting, “January effects" prevail in Indian consumer markets, though these effects differ across segments.

Here are a few anecdotes which highlight this effect in urban India—they may not be a valid sample, but they suffice to make the point. The manager at my gymnasium tells me that he enrols the maximum number of new memberships during January. My insurance agent says he gets the highest number of fresh enquiries during this month. Many of my colleagues have just set savings targets and are considering systematic investment plans.

These January behaviours are mostly driven by New Year resolutions which have become fashionable “must-dos" for young and middle-aged affluent urban Indians. Most of these commitments centre around key anxieties such as health and weight, family and financial security. Thus, these consumers tend to prioritize investments in each of these areas during January, while resolutions are still fresh. An annual gym membership and a savings plan are investments in good health and early retirement respectively.

Consequently, there is less money to spend on discretionary consumption. This is possibly why sales of liquor in urban India decline during January, as does expenditure on parties, holidays or shopping. Consumers tend to accept this without much demur, particularly since significant consumption of these discretionary products has just occurred in the previous month of December, after which diminishing returns naturally set in.

In sharp contrast, a different January effect appears to work on consumers in rural and small-town India, as well as older and more traditional people in urban India. For these groups, January is a month of celebration, with the harvest festival of Sankranti (or Pongal) bringing in crops, cheer and money. In most regions, a busy wedding season also begins during this period, thus providing ample opportunity for consumption and gifting. There are no fashionable New Year resolutions here, neither has there been any extensive shopping or feasting or holidaying during December. Rural and traditional India is, therefore, in strong consumption mode during January.

A third consumer segment which is affected very differently in January is college-going youth. January and the first-half of February make up the last stretch of freedom these youngsters enjoy before they suddenly and, reluctantly, lapse into a period of serious examination fever. Therefore, there is a sense of underlying urgency to relationships, to eating out at restaurants, watching movies or shopping for accessories. For many youth-oriented products, this behaviour is a key reason why the run-up to Valentine’s Day has today become as large a selling season as Diwali.

A fourth and final segment affected by the “January effect" is investors in financial markets. No, this “January effect" isn’t for the reasons Thaler outlines, but because this month happens to precede the Union budget. Every year, there is frenzied speculation among this segment of the population on how the budget will address issues such as inflation, fiscal deficit, privatization, taxation and many other policies affecting these markets. Investor behaviour during the month is thereafter led by a range of assessments based on such speculation. Significant investor interest in public sector company stocks (such as Hindustan Copper and National Mineral Development Corp., or NMDC) this January, in anticipation of privatization announcements in the coming Budget, illustrates this behaviour.

Marketeers can profitably leverage these “January effect" insights to maximize the impact of their efforts among these diverse consumer groups.

Harish Bhat is chief operating officer, watches, Titan Industries Ltd. These are his personal views. Comment at