Good morning. We all read the headlines about great demand in the Indian auto sector, and how people were buying more and more cars. Numbers now show that this was a post-pandemic demand that is now slowing down. Large companies, despite available data, seem to have missed the woods for the trees. And it is likely that this miscalculation isn’t just limited to the automobile industry. 

In other news, rising consumption is attracting investors to India’s consumer goods companies. Meanwhile, it was raining gold in Mumbai during Ganesh Chaturthi.

THE TAKE

When Large Companies Misread Market Signals

Car companies like Tata Motors are cutting prices quite sharply. The price cuts would be fine if the automobile industry was not a key barometer of the overall economy. A report by Nomura Securities says the sales of passenger vehicles (PV) and medium and heavy commercial vehicles (MHCV) are important to gauge cyclical growth in the economy.

While PVs signal discretionary demand, MHCVs have a strong linkage to overall industrial activity.

Now both PVs and commercial vehicles have disappointed in July and August, Nomura has said. On the other hand, inventories have risen from 55-60 days to 70-75 days with dealers as we have been pointing out in recent days and months.

This is the important part. Nomura has said that the moderation in buying may have been triggered by the fading pent-up demand post-pandemic, higher interest rates and the slowdown in government spending thanks to elections, which are several months behind us now. There is nothing that says why this will reverse now.

The larger issue, however, is the reading of signals. Companies worldwide appear to have assumed pent-up demand was equal to consistent demand and growth. An example is the US where discount retail chain Big Lots, with over 1,300 stores, has filed for bankruptcy. The Wall Street Journal says this is the latest retail casualty as consumers reigned in spending after a post-pandemic surge. There are similar reports on spending slowing down in services as well, including travel within and out of the West. 

You cannot blame companies for being exuberant and betting on a consistent rise in sales. But India’s auto sector seems to be a cautionary tale of too much optimism leading to too much production and then not relenting. This is despite dealers pushing back for months saying they were reeling because of huge inventory build ups.

While, as always, some models are doing better than others, the fact is there has been a slowdown, and notably so at the entry level. Raj Singhania, the president of the Federation of Automobile Dealerships, told The Core last week that incomes have not risen by the same rate (70% or so) as car prices.

“Average prices for passenger vehicles were around Rs 6.5 lakh four or five years ago, now the average price is almost Rs 11 lakh,” Singhania said.

Somewhere in this, there is a pretty large assumption failure, that growth would follow a natural momentum. It is in some ways obvious, even in retrospect, that car makers were not really looking at other figures like income and jobs. Or even if they were, they did not pay as much attention to the details as they should have. Moreover, they jumped on the easy-to-believe answers or excuses like heatwaves and then heavy rains keeping India’s consumption low.  

Large companies, including car makers, usually do their own studies and build models based on them. But between the lack of good public data, particularly more real-time, and the haze that led to the car makers not believing in what they should have been seeing in broad daylight, they pumped out tens of thousands of more cars than they should have.

And then there was the stock market. Who wants to be the first to signal to the stock markets that sales could be headed down when stock prices are racing up? Well, obviously no one.

While the exuberance in auto sales and its hangover effects may be visible, could this be the case in other consumer-facing industries in India as well?

CO:RELATIONS

Hungry Food Businesses

The India consumption story is attracting investors from everywhere. That is reflected in extremely high valuations of large-cap, consumer-centric domestic and multinational company share prices. In 2024, investors added smaller companies like Godrej Agrovet, Vadilal Industries, and Heritage Foods to their consumption portfolios. The anticipation of the trickle-down effect is due to the rising rural and urban food consumption. 

This is also reflected in the recently published paper on the Household Consumption Expenditure Survey by the Economic Advisory Council of government. It shows a significant change in food habits over the past ten years. Households in India are diversifying their diets from cereals with increased spending on milk and milk products, fruits, eggs, fish and meat. Surprisingly, this trend is more pronounced in the bottom 20% of households. The increase in spending on protein-rich foods is across the board. According to the survey, the per capita consumption of meat, eggs, and milk products surged sharply in rural and urban areas.

NASSCOM CONVERSATIONS

Here’s How Businesses Can Equip Themselves Against Cyber Attacks

India’s digital economy is projected to reach $1 trillion by 2028, bringing both growth and risks. Cybersecurity has become extremely important for internet users, especially companies and even the government. Data Security Council of India CEO Vinayak Godse said that ransomware attacks have become advanced and target companies that have better market valuations and good cash flow. Not only are companies adopting strategies to protect themselves, many companies are looking to India for this issue. “Lot of global companies are moving their security operations, services engineering to India because of the skill that we have,” Godse said on the podcast Nasscom Conversation.

Listen to the whole conversation here: Spotify | Apple

CORE NUMBER

55kg

This is how much gold was offered by Mumbaikars to Ganpati, the Hindu deity, on Ganesh Chaturthi this year. This was 15 kgs more than last year. Ganesh Chaturthi marks the beginning of the festive season in India, which will end with Diwali. The Economic Times reported the spokesperson of India Bullion & Jewellers Association, the apex body for gold trade, Kumar Jain as saying that customers bought more gold this year while they had bought more silver last year. A silver gold lining for the festive season perhaps? 

FROM THE PERIPHERY

—🛬 Madhya Pradesh is getting its sixth airport after India’s aviation statutory body, the Directorate General of Civil Aviation (DGCA), gave the green light to begin operating the Rewa airport. Located in the Vindhya region of Madhya Pradesh, the Rewa airport’s foundation stone was laid about a year ago in February 2023. It is part of the government’s push to set up smaller airports in different parts of the country, outside of the big cities. Another such airport will be the Noida International Airport or Jewar Airport. 

—🪧 South Korean electronics giant Samsung Electronics faced protests from workers for a second day in its plant in Tamil Nadu’s Sriperumbudur. The workers are demanding higher wages. Business Today reported that they have set up tents outside the factory and have stopped all work. Samsung manufactures electronics such as refrigerators and washing machines in this factory. The workers have also demanded the right to form a union, reported The Hindu Business Line. 

—🚘 The Ministry of Road Transport and Highways has updated the National Highways Fee Rules, introducing satellite-based toll collection via Global Navigation Satellite Systems (GNSS), including GPS. This new system calculates tolls based on the actual distance travelled, unlike the current FASTag system. Vehicles with GNSS On-Board Units (OBUs) will automatically pay tolls without stopping at booths. This modernised system aims to boost revenue, with annual toll collections expected to rise from Rs 40,000 crore to Rs 1.4 trillion within two to three years once the system is fully implemented.

—🔧 India’s Semiconductor Mission (ISM), which aims to enable India as an emerging global hub for electronics manufacturing and design, is set to roll out a new incentive package worth over US $10 billion to attract foreign chipmakers and component suppliers. Akash Tripathi, CEO of ISM highlighted that 20 proposals, including fabrication and testing facilities, are under review. This announcement aligns with ISM’s partnership with the US for semiconductor development, supported by the US $500-million International Technology Security and Innovation (ITSI) fund. Tata Electronics and Taiwan's PSMC have already seen approvals for an $11-billion chip plant and four assembly facilities. 

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