Consumer Outlook Index confirms economic recovery; score turns optimistic for first time in three years: ZyFin Research

Consumers take a Leap of Confidence

ZyFin Research's Consumer Outlook Index has crossed into optimism for the first time in three years after receiving a 4.9-point boost to 50.1 in October 2014. This shift in consumer sentiment is the earliest signal that India's growth story is set to resume. The index has improved by a total of 9.5 points since posting a score of 40.6 in April 2014. The current increase is driven by a strong improvement in willingness to spend, particularly among younger Indians. Incidentally, the US Consumer Sentiment Index has reached a seven-year high this October.

The Consumer Outlook Index, a barometer for consumer confidence, reflects current and future spending plans, employment and inflation outlook of urban Indian consumers. It is based on a monthly survey of 3,000 consumers in 11 cities across India. A score above 50 reflects optimism, while below 50 is an indication of pessimism. In October 2014, of the 11 cities surveyed, 7 turned optimistic. The three cities with highest consumer confidence are Mumbai, Hyderabad and Indore.

Key Highlights of the ZyFin Consumer Outlook Index for October 2014:

The ZyFin Consumer Outlook Index of India (COI) has registered a score of 50.1 in October 2014, as compared to 45.2 in the previous month. The improvement in the index since April 2014 is a strong indication of growing consumer belief in a forthcoming economic recovery. Interestingly, confidence among urban Indians is currently strongest in the smaller Indian cities, rather than metros.

The COI comprises three major components, measuring consumer sentiment on spending, employment and inflation.

The Spending Sentiment Index assesses willingness to make big-ticket purchases including homes, home appliances, four- and two-wheelers in the next six months. The index has improved to its highest-ever level of 41.2 in October 2014, from 32.3 in the previous month, driven by improvement in all product categories surveyed. Willingness to spend is a precursor to actual demand. The current uptrend is, therefore, an early signal of a possible recovery in sectors such as automobile, consumer durables and real estate over the next four to six months.

The Employment Sentiment Index, a unique measure of employment sentiment around the country, provides insights into job security and availability as well as expected household incomes of Indian consumers. The index is at its highest-ever score of 55.4 in October 2014, having moved up from 53.2 in September 2014. Consumer outlook on personal job security and the unemployment rate has shown a healthy increase over the previous month.

The Inflation Sentiment Index is based on the largest monthly inflationary expectations survey in the world. In October 2014, the index improved to 27.4 from 25.8 in the previous month. A growing number of consumers believe that the inflation rate will moderate in the near future. This is in sync with actual inflationary conditions, as risks around food inflation subside and global crude prices decline.

Giving his views on the ZyFin Consumer Outlook Index numbers for the month of October, Mr. Debopam Chaudhuri, Chief Economist, ZyFin Research, said, With rising confidence in increasing household income, Indian consumers are expected to once again aspire to improve their living standards. With consumer spending making a comeback, economic growth is expected to bounce back to sustainable levels. After all, one person's spending is another's earning. Sectors to benefit directly from this recovery are auto, consumer durables and real estate.

The ZyFin Consumption Stock Portfolio (a portfolio of consumption-related stocks) is up 2.8% in October 2014.

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