The Silent Revolution
We have emphasized the statement about the revival of consumption. The seeds were sown gradually: income tax cuts, lower interest rates and state welfare schemes have all boosted disposable incomes. Two consecutive good monsoons boosted rural incomes, while deflation in key commodities such as tea, coffee, vegetables and basic foodstuffs eased household inflation.
Together these have laid the foundation for the upcycle of Indian consumption. And with the recent GST rate cut, the switch has finally been flipped. It is the silent revolution that India needed.
We Indians are looking for natural values – and what’s better than a price drop of about 10% overnight? The first signs indicate that the floodgates have opened and that consumers are spending money again.
From story to figures
After a few quarters of waiting, the revival story finally appears in the data. Media reports, dealer interactions and quarterly updates from consumer companies all point to strong momentum. According to the media, Navratri sales are the highest in a decade. Bookings for small cars for India’s largest carmaker have increased by 50% during the Navratri period, as reported in media. Comments from electronic retail chains show that consumer durables have grown more than 20% over the same period. The first festive sales in the e-commerce and quick-commerce channels remain strong. Value fashion retail players report 20 to 90% growth in the second quarter, while real estate demand remains robust. The growth of system credits is also slowly increasing. Some categories may still be adapting to short-term channel disruptions, but this consumer exuberance is spreading quickly – and will likely spill over to other segments soon.
When everything looks perfect, the valuation bargains disappear
Despite all this, consumer stocks as a group haven’t moved much. Auto stocks have made some progress, but the broader consumption index has fallen over the past month.
Why is the market ignoring this change?
Markets, like people, are not immune to cognitive biases. The recency bias keeps investors glued to the past three years – a period when the consumer economy struggled while the capital investment cycle revived. That performance gap still lingers in the minds of investors, even as the government’s policy focus clearly shifts from capital investment to consumption.
Add to that the glaring bias: the tendency to focus on loud headlines (US rates, FII exits, market volatility) while missing quieter signals. Meanwhile, many quality consumer companies are still trading below their five- to 10-year average.
But as the full picture of financial performance emerges, the market will catch up. Stock prices will ultimately be in line with the intrinsic value of the company.
In investing, like life, the market rewards anticipation, not reaction.
By the time it’s clear, it’s over.
And right now, Indian consumption is at that point – early but already in flux.
(The author Nimesh Chandan is CIO, Bajaj Finserv AMC)
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