India's slowdown is touching the untouchable

MUMBAI, Nov 5 (Reuters Breakingviews): India's biggest companies no longer offer a rose-tinted window onto the world's fifth-largest economy. Shoppers have been tightening their purse strings, for years. Now the austerity is spreading from the rural poor to the urban rich. That is the opposite of the recovery story that was supposed to play out.

GDP is growing at 6.7 per cent but the reality is that consumption has been weak in India since at least 2020. Income growth is anaemic: casual and regular workers in 2023 earned a monthly wage 1 per cent, lower than in the previous year, per an International Labour Organization report based on government data. For a while, big companies that dominate the country's stock benchmarks like the Nifty 50 Index seemed well insulated.

The latest set of company earnings suggest otherwise. Hindustan Unilever's net profit fell 2 per cent, year-on-year for the three months ended September. Reliance Retail - a unit of $215 billion Reliance Industries - reported a 1 per cent, drop in revenue in the same quarter and shrank store space by 2 per cent, from its June level; boss Mukesh Ambani's execution on strategy looks as much of a problem as a softening economy. Shoppers Stop, an upscale department store, logged its second straight quarter in the red. The list goes on.

A column chart showing Hindustan Unilever's volume growth for every quarter since 2018-19

The hope was always that the incomes of the poor who were buying fewer biscuits would improve. Instead, urban demand is showing weakness too - sales of fast-moving consumer goods groups in cities are growing at nearly one-fifth, opens new tab of last year's rate - just as rural sales inch up from a prolonged slump.

India's festival season is usually a time people spend but carmakers struggled to clear inventory in the run up to the Diwali holiday last week: Revenue growth at Maruti Suzuki, the country's top carmaker by sales, crawled at its slowest pace in three years during the September quarter. Even luxury marque BMW is slashing prices; discounts, could get bigger going forward, the Times of India reported on October 28, citing unnamed industry analysts. Nearly half of the top 100 listed firms that have reported earnings for the September quarter missed estimates by more than 4 per cent, the highest since March 2020, according to Venugopal Garre and his colleagues at Bernstein. Garre says companies are not acknowledging "the elephant in the room" and are hoping the slowdown is a one-off anomaly. For the country's eye-wateringly expensive equities - MSCI India is valued at more than 23 times earnings - that sets up a lot of potential pain.