A recent report by Nomura highlights a concerning trend in India’s festive season sales, with
consumption growth slowing to half of last year’s rate. The brokerage observed that festive
consumption growth this year was only 15%, a significant drop from the 32% growth in 2023
and 88% in 2022.
According to the report, while there is stable demand in rural areas and smaller cities, major
metros and industrial areas reported much weaker numbers. This trend, Nomura warns, signals
a possible cyclical slowdown that may impact India’s broader economic growth outlook.
Declining Festive Consumption Trends
The 15% festive growth observed this year falls sharply from previous years, particularly
compared to the robust demand seen in 2022, when growth reached 88%. Nomura’s analysis,
based on anecdotal evidence and rough estimates, indicates that although offline and online
retail sales have risen, they are not matching the pace set in past years.
The Confederation of All India Traders (CAIT) also reported slower growth in retail sales, with
projections at 13.3% in 2024, down from 36.4% in the previous year. This decline reflects
weakened consumer sentiment, particularly in urban markets, where discretionary spending has
been constrained by economic challenges.
Rural Demand vs. Urban Weakness
A closer look reveals a divergence in consumption patterns across different regions. According
to Nomura, demand remains stable in rural areas and tier-2 and tier-3 cities, which have shown
resilience despite economic uncertainties. However, metro cities and industrial hubs have faced
sluggish demand, resulting in an overall “mixed” festive season.
The Union Ministry of Finance had previously noted weak urban demand, which aligns with
Nomura’s findings. This split between urban and rural demand indicates that while smaller
towns are maintaining spending, urban markets, which traditionally contribute a significant share
of the festive season’s revenue, are facing challenges.
Impact on Retail Sectors: Auto and E-commerce Trends
Nomura’s report provides additional insight into specific retail segments. Retail auto sales saw
an increase of 14% during the festive period when adjusted for the shradh season. However,
wholesale sales, particularly in passenger vehicles and medium and heavy commercial vehicles
(MHCVs), underperformed. The auto sector’s split performance reflects the broader trends in consumer spending, with rural buyers showing more resilience while urban demand remains
inconsistent.
The report also highlights e-commerce and gold sales, which traditionally surge during the
festive season. However, this year, while there was some increase, overall growth remained
limited. This data points to more cautious spending habits, possibly due to inflationary pressures
and uncertain economic conditions.
Cyclical Growth Slowdown and GDP Concerns
Nomura’s analysis suggests that India may be experiencing a cyclical growth slowdown. The
brokerage expressed concerns about the Reserve Bank of India’s (RBI) real GDP growth
forecast of 7.2% for FY25, noting that downside risks are rising. Nomura’s own projection is
6.7%, which it views as optimistic given current indicators. Factors contributing to this slowdown
include restrained consumer spending, weak urban demand, and external challenges, which
collectively weigh on economic growth.
With consumption playing a critical role in driving India’s GDP, the decline in festive demand
raises questions about broader economic stability. Nomura warns that the reduced growth in
domestic consumption could lead to adjustments in growth forecasts, especially if these trends
persist into the coming quarters.
Potential Boost from Wedding Season
Despite the overall decline in festive demand, Nomura anticipates a short-term boost from
December weddings, which could increase consumer spending on items like apparel, jewelry,
and household goods. The wedding season traditionally drives demand across multiple sectors,
providing a temporary lift to sales figures. However, the anticipated boost may not be sufficient
to offset the annual decline in festive sales growth.
Nomura’s findings on India’s festive consumption slowdown and the potential cyclical growth
slowdown underline key economic challenges facing the country. The split in demand between
urban and rural areas highlights the uneven nature of the recovery, with metros lagging behind
smaller cities and rural areas. The weakened festive season is a sign that consumer sentiment
is cautious, which may continue to affect growth in key sectors.
The upcoming wedding season may offer some relief, but India’s economic outlook remains
uncertain as analysts watch for signs of recovery in urban demand. If these trends persist, it
may lead to a reassessment of India’s GDP growth forecasts for the coming fiscal year.