Why the festival season may not bring much cheer despite tax cuts by govt

Car sales in August fell the most on record and Maruti Suzuki India Ltd.

Poor demand from Indian consumers could dampen the mood during festivals next month, especially for automobile makers and retailers that count on the season for a sales boost, analysts predict.

Indians typically buy everything from new cars to shoes for themselves and as gifts during celebrations steeped in religion and tradition. Yet the slowest economic growth in six years, unemployment at a 45-year high and tepid private consumption may see sales fall short of recent years, even after the government’s $20 billion tax break to companies earlier this month.

“You can make the product 50% cheaper, but there has to be income to spend,” said Nitin Gupta, an analyst at SBICAP Securities Ltd. in Mumbai.

“In the short-term, I don’t see any kind of an income boost. Rather than giving cash to individuals, they have given it to companies.”

Car sales in August fell the most on record and Maruti Suzuki India Ltd. Friday reduced the price on its Baleno RS model by 100,000 rupees ($1,420) to pass on the benefit from the tax cut.

Market researcher Nielsen has lowered its 2019 growth estimate for fast-moving goods to 9%-10% from 11%-12%, while a stock gauge of consumer discretionary firms is set for its first annual back-to-back losses since at least 2005.

Even so, the industry’s fortunes beyond the approaching festival season are poised to improve, according to BNP Paribas SA. Plentiful rainfall seen this monsoon season and cash handouts to farmers will help lift rural incomes, helping sales of staples recover in the second half of the year that began April 1, the brokerage said in a recent report.

Business Standard