ZyFin Consumer Outlook Index Slides as Spending Plays Truant

Sentiment on spending at all-time low despite improvement in employment, stabilising inflation

ZyFin Research has today announced the Consumer Outlook Index for April2014. The index, which is a barometer of consumer confidence, reflects current and future spending plans, employment and inflation outlook of urban Indian consumers. It has registered a score of 40.6 for April 2014, as compared to 42.2 for the previous month. A score above 50 reflects optimism while below 50 is an indication of pessimism. The cities of Mangalore, Mumbai, Hyderabad and Guwahati registered the best overall scores for the month.

The index is based on a monthly survey of 4,000 consumers across 18 cities categorised into metros, Tier I and Tier II. With private spending, accounting for over 55% of India's real GDP, consumer outlook plays an important role in identifying turning points ahead of time.

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

The ZyFin Consumer Outlook Index of India (COI) declined to 40.6in April 2014, from 42.2 in the previous month. This is primarily due to the sharp fall in Indian consumers' willingness to spend over the past four months, despite mild uptrend in employment and stabilising inflation sentiment. Consumers, unsatisfied with the slow improvements in fundamentals, have decided to postpone their spending plans altogether. In the absence of organic growth, a demand push is of utmost necessity, warranting urgent policy intervention.

The overall COI remains least pessimistic in Tier II cities, where favourable agricultural conditions over the past year have raised the sentiment on inflation and employment to a level higher than in metro and Tier I cities; these improvements have, however, been insufficient in providing the much-needed demand push. If predictions of sub-normal monsoons this year prove correct, there could be a strong need for policy aid to boost spending in India's smallest cities.

Among the COI components, the Employment Sentiment Index improved to 51.6 in April 2014, from 51.0 in the previous month; it has now been within optimistic territory for four consecutive months. This optimism is due to improving current and expected personal job security. The sentiment on employment is optimistic at the metro, Tier I and Tier II levels, with the latter recording the best score for the second consecutive month.

The Inflation Sentiment Index remains at 25.1 for the second month, having improved from 23.3 in the month prior. This indicates that inflation sentiment is stabilising. However, it is worth noting that, after four months of significant improvement, ZyFin's Food Prices Index rose only marginally, by 0.9 points to 48.7 in April 2014, as El Nino predictions have made food prices a concern again.

The Spending Sentiment Index declined for the fourth consecutive month to its lowest-ever level of 25.9, from 29.0 in the previous month. This is the key reason for the overall decline in the COI. Sluggish improvements in employment and inflation are inadequate in turning around consumers' wariness toward spending. The Vehicle Purchase Sentiment Index and the Durable Purchase Sentiment Index are at an all-time low, with the Real Estate Purchase Sentiment Index near its lowest-ever level. Furthermore, the Borrowing Comfort Index is at its six-month low, suggesting that high interest rates are causing consumers to postpone their spending plans. At the tier level, the sentiment on spending is best in metro cities, while Tier I cities are least likely to make big-ticket purchases.

Giving his views on the ZyFin Consumer Outlook Index numbers for the month of April, Mr. Debopam Chaudhuri, Chief Economist, ZyFin Research, said, Consumers spending is expected to hit a new low, with contributing sectors such as auto and consumer durables to remain weak.

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