Indian consumer confidence dips in August: ZyFin Research

Growing impatience about lack of change in employment scenario after 100 days of new government

ZyFin Research's data for August 2014 indicates that consumer confidence has waned marginally for the second consecutive month. Although it is too early to term this a trend, it does signal that the euphoria prompted by the formation of the new government is starting to weaken, as consumers sense no major shift in economic conditions. This decline is primarily due to weakening in sentiment toward job security and willingness to spend on big-ticket items.

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 4,000 consumers in 18 cities across India. In August 2014, of the 18 cities surveyed, only 7 showed improvement in consumer confidence as compared to the previous month. The five cities with the highest scores were Mangalore, Hyderabad, Delhi, Indore and Mumbai.

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

The ZyFin Consumer Outlook Index of India (COI), at 43.6, is 0.6 points lower than in the previous month. Although the score remains higher than in any of 12 months of 2013, a decline at this stage of the economy's healing process could catalyse a setback, with consumer spending, a major contributor to India's growth story.

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

The Spending Sentiment Index assesses willingness to make big-ticket purchases such as homes, home appliances, two and four- wheelers in the next six months. After three months of consecutive incline, the score dipped by 2.6 points to 30.8 in August 2014. The number of consumers willing to purchase homes and home appliances declined in August, as compared to July. However, willingness to spend on two and four-wheelers did not witness any major movement, with the scores remaining flat. We do not expect this negative sentiment to impact festive spending in 2014 as this is a forward-looking indicator.

The Inflation Sentiment Index is based on the largest inflationary expectations survey in the world. In August 2014, the index improved by 1.2 points to 26.7, from 25.5 in July 2014.

The Employment Sentiment Index is a tracker of the employment situation as perceived by consumers. Although the index remains above the benchmark level of 50, suggesting consumers are still optimistic, the absolute score has declined over the previous month. The current score is 50.9, down from 52.5 in the previous month. Consumers show greater concern toward their own job security, rather than the overall unemployment level in the economy. This lack of confidence has had an impact on their willingness to spend.

Giving his views on the ZyFin Consumer Outlook Index numbers for the month of August, Mr. Debopam Chaudhuri, Chief Economist, ZyFin Research, said, The sudden dip in confidence levels illustrates the short attention span of Indian consumers. It is crucial for confidence to be restored through effective expectations management, especially by the Government. While economic recovery is a long-drawn process, and results cannot be expected overnight, low consumer confidence can overturn all positive measures taken so far.

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