According to the Intelligence Finance app, the latest quarterly earnings of Indian consumer companies are sounding the alarm - with inflation and unemployment depressing market sentiment, the urban middle class has continued to reduce spending for at least the second consecutive quarter. It is reported that at least seven of India's largest companies, including the retail department under Reliance Industries and the consumer industry leader Hindustan Unilever, showed softening consumer demand and a challenging operating environment in the July to September quarter.

With the optimism fading after the pandemic, rising interest rates, slowed wage growth, and poor job prospects are hurting demand among urban residents in India. While rural Indian consumers show signs of increased spending - thanks to good monsoon seasons that boost rural incomes, this cannot compensate for the reduction in spending by nearly 0.5 billion urban residents.

For global giants seeking to boost performance growth through India's 1.4 billion consumers, the rift in the Indian consumer story signals a grim outlook. R. C. Bhargava, Chairman of Maruti Suzuki India Limited, said on Tuesday, "The worrying reason is that growth is only happening in certain areas." India's largest auto manufacturer announced disappointing profits. R. C. Bhargava stated, "The segment that previously held an 80% market share hasn't grown." He referred to entry-level small cars, which are seen as indicators of urban consumer demand.

Operating income of the retail department under Reliance Industries declined by 3.5% in the third quarter, partly due to weak demand for fashion and lifestyle products. In addition, Ritesh Tiwari, Chief Financial Officer of Hindustan Unilever, pointed out that while rural demand is recovering, it cannot offset the shortfall in large-scale urban spending, with smaller towns and villages accounting for only one-third of the company's sales. He stated that demand growth recovery will take several quarters.

Growth slowdown.

As the Reserve Bank of India has not shown any willingness to give in to calls for rate cuts, this weakness is affecting growth forecasts for India. Investment banks such as Goldman Sachs have lowered their economic growth forecast for India to 6.5% this year. The Modi government also estimates that India's economic growth rate will be between 6.5% and 7% up to March 2025.

The Indian Ministry of Finance stated in a report on Monday, "The potential demand situation deserves attention." The report pointed out that softening consumer confidence indicates a slowdown in urban consumption. Data shows slowdowns across various industries: passenger vehicle sales have declined for two consecutive months in September; air travel has seen three months of decline out of the four since June; factory activity in India has been softening since July, despite a slight rebound this month.

Economists Sonal Varma and Aurodeep Nandi of Nomura Holdings stated, "Indian companies are cutting their wage expenses." They pointed out that companies are reducing wage costs, reflecting the combined impact of slowing nominal wage growth and workforce rationalization.

Sonal Varma and Aurodeep Nandi stated, "We believe that the softness in urban demand may persist." They explained that the surge in suppressed demand post-pandemic has faded, monetary tightening, and the blow to unsecured crediting by the Reserve Bank of India are damaging economic activity.

Credit card delinquency

Kotak Mahindra Bank, one of India's largest banks, reported an increase in non-performing assets for the September quarter. Chief Executive Officer of Axis Bank, Amitabh Chaudhry, stated during this month's financial results conference call that the company's asset quality has also deteriorated. The latest data from the Indian credit information company TransUnion CIBIL shows that credit card delinquencies increased by 17% year-on-year as of June.

Suresh Ganapathy, Head of Financial Services Research at Macquarie Capital, stated that the rise in credit card defaults is related to the slowdown in urban demand. "Feedback from banks is that the middle class is indeed facing a greater impact. There are issues of inflation and overleveraging - all of these are to some extent causing the economic slowdown."

"Touchstone"

Businesses have been waiting for the Indian festive season to boost sales - the three-month waiting period will culminate in Diwali later this week. Traditionally, Diwali in India is a shopping extravaganza, similar to the Christmas season in the USA and European countries. That's why sales during the festival period will be a touchstone for Indian consumer demand. Reserve Bank of India Governor Shaktikanta Das stated on Monday that demand during the Indian festive season so far presents a "mixed" picture.

Although companies like Mahindra & Mahindra and Hyundai Motor India Limited have stated that their sales have improved at the beginning of the festive sales season, other companies are not as optimistic. Rakesh Sharma, Director of Bajaj Auto Ltd., said during the October 16 earnings conference call: 'The motorcycle industry is almost flat, with only a 1% to 2% growth. We originally thought this figure would be between 5% to 6%.' He stated that he would wait to see how the entire holiday season turns out, but maintained his expectations, 'I don't think we will reach growth rates of 8% or 9%, otherwise I would be surprised.'