I have expressed my opinion on the Indian consumption story through the following.
FICTION
SHORT CONSUMPTION
Its been a year since then and I thought it was worth revisiting the topic.
Will first take the "SHORT CONSUMPTION" view.
Very clearly this has not worked out as expected and in fact in some cases there has been a decent positive return to those who held on the stocks.
There are a few stocks which have gone down,but broadly there is no denying that the shorting call hasn't worked.
Here is a snapshot of why it has not worked out.
And now I will come to the "FICTION" bit...
As I have already suggested there, that the growth in consumption is majorly funded by the huge deficits and would not have been this strong but for the deficits.So given the performance by the consumption, do I still think the same way??
In the last 6 months, the consumer durables and auto numbers suggest there is a slowdown.In some cases,its negative growth.
The positive news has mostly come from the FMCG companies in terms of volume growth, but that was expected and I also didnt expect them to do badly,as I have mentioned in the articles.
So on this front, it is going as suggested in the article.
But it is still not clear whether the slow growth currently visible in various consumer categories will become a full blown recession in this sector.
At this point ,I just would like to draw attention to some data points.
- According to RBI, the projection sanctioning has less than halved from FY10 to FY12. SBI CMD has given even more drastic numbers for the first half of FY13.The projects being executed today were awarded and sanctioned 2-3 years back.
Given that project sanctioning has slowed down dramatically in the last two years and is continuing as we speak, it looks very likely that project execution will struggle big time in FY14 and FY15. That may lead to employment and job generation problems.Persistent inflation with job insecurity will not help consumption.
- The other point is that, though the government deficits are still out of control, the incremental deficits are towards oil and fertilizer subsidy bills. Most of this money goes straight out of the country to where we imported the stuff from.So doesn't add to the pockets of the consumers,who are already struggling with higher prices.
Recently Kotak came out with a report fearing a "Investment Cliff". Putting my head on the block and I suggest that "Consumption Cliff" is also on the cards.
So inspite of the underperformance of my previous recommendation of shorting or selling consumption stocks, I re-iterate the call.
Get ready for a "Consumption Cliff"!!
(Standard Disclaimer: The probability of my opinions going horribly wrong is closer to 1 than zero!!)
