Shopping spree on the cards?

Hyderabad: With the advent of festival season, low EMIs induced by rate-cut and wage revision for government employees seem to be creating new hopes in market circles perturbed by years of sluggish growth.

Almost two weeks after the Reserve Bank of India effected the rate cut, banks started reducing the interest rates at least partially making the loan servicing burden lighter to some extent. Indian market is typically known for installment culture that too supported by credit-based purchases.

The growing middle class has further strengthened the trend. Easy and cheap borrowing boosts this desi consumer culture. The culture of buying something on an auspicious occasion made festivals popular for shopping behaviour. With Dasara and Diwali coming in close proximity, markets expect a bullish shopping in the coming weeks.

Nine-day Bathukamma festival season also commences on Monday in Telangana . The separate state movement and its success have given the festival renewed identity and a cause for greater celebration. This Dasara is special for the people of Andhra Pradesh as the state would begin a mammoth effort to rise the state capital during this season itself.

Holidays for children provide leisure time for the parents to shop in. Market estimates that cheaper borrowing alone could mean sales growth of 12 to 15 percent this year. "Many customers were waiting for rate cuts. They didn't want to make a decision," a salesman at a local car dealer says with a grin, surrounded by gleaming new cars.

"They will definitely come now." The two-month religious festive period kicks off on Monday, a time considered auspicious to buy big-ticket items such as cars, refrigerators and other heavy consumer appliances. With retail spending accounting for 50 to 60 percent of the economy, India needs households to splurge on more expensive, higher-margin items like washing machines, TVs and cars.

To date, a combination of slow consumer spending and a dearth of corporate investments has delivered a double punch to the economy, which grew a slower-than-expected 7 percent in the April-June quarter, well below the government's 8 to 8.5 percent target. With inflation around record lows and central-bank rate cuts totaling 125 basis points so far this year, retail traders believe a consumer recovery is now in the offing.

Firms selling discretionary items such as cars and electronics are desperate for such a recovery. They have reported double digit annualised falls in earnings for the past four quarters. Banks have not passed on all of the RBI's latest cut. In the last two weeks, auto loans are down only 25 basis points, and home loans by 30 basis points. But retailers expect traditional festival-season discounts to help pull shoppers in.

Added to that, Indian consumers often prefer installment plans to finance bigger purchases. Known as equated monthly installments (EMI), they are typically provided on a floating-rate basis, so consumers benefit from falling loan rates. Sunita, a 35-year old nurse, at an electronics store, said she planned to buy a washing machine for now and a TV next month during Diwali.

"We can afford the washing machine now since EMI will be cheaper after interest rates have come down, and there are discount offers before festive season," she said, speaking as she headed into the store with her husband and young son. "I can spread out the expenditure, rather than pay a lump-sum amount upfront."

Optimism about consumer demand is being given a further boost as the nation gears up to raise the wages of 10 million central government employees and pensions from next year. The state government employees and workers of public undertakings like RTC already received fairly handsome wage revision .Even the bank employees got a pay hike recently .

Abheek Barua, chief economist at HDFC Bank in New Delhi, says last month's official rate cut and the expected pick-up in consumer demand would help boost economic growth. He has forecast 7.5 percent growth for the year ending in March. "Earlier we were banking on investment demand to push up growth," he said. "Now we are expecting a better consumption phenomenon to drive growth."

However, making a surgical view of the market trends, B Srikanth , a major dealer of popular apparel brands who also owns few retail stores expressed caution. The market should have picked up by now,. But, no such movement is yet visible and hopes some change in the coming few days. The entry of big online traders with steep discounts have made a significant dent into physical buying space hitting hard the retail trading, Srikanth added.

Further taking a disaggregated view of the market, B Srikanth said that market performance is not uniform. Certain segments like mobile phone sector is witnessing a boost as young consumers prefer to by a smart phone than a smart dress. Too much competition and steep discounts to survive in the market resulted in supply surpassing demand leading to stocks piling up and margins squeezing, he added.