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Consumer demand is shifting from goods to services suggests contraction in demand for durables
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The contraction in demand for consumer durables in Q1 FY24 versus the average of FY23 seems to suggest that consumer demand is shifting from goods to services and, therefore, this could be a structural rather than cyclical trend, says Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers.
Despite growth being low, modest momentum in staples seems to suggest recovery in rural demand.
The 3.7 per cent IIP growth in Jun’23 was below expectation and reversed the acceleration of the previous three months. Weak durables demand is particularly concerning and could reflect structural changes, he said.
“Yet, compared to peers, India is doing better, and we expect some improvement next month. Signs of rural demand recovery continue”, he added.
Industrial growth slowdown in Jun’23 after three successive months of acceleration was a dampener, raising questions about sustained industrial recovery in the year. This also seems to explain why the RBI did not adopt a more aggressive stance in the latest monetary policy announced despite raising inflation expectations for the year.
The slowdown is entirely led by the manufacturing sector, which grew at a three-month low of 3.1 per cent in Jun’23. On the other hand, electricity and mining output accelerated at 4.2 per cent YoY (0.9 per cent YoY in May’23) and 7.6 per cent YoY (6.4 per cent YoY in May’23), respectively, in Jun’23, says a report by Motilal Oswal Financial Services.
Within the manufacturing sector, food products, textiles & wearing apparel, chemical products, fabricated metal products, computer, electronic & optical products contracted and pharmaceuticals, rubber & plastic, machinery and motor vehicles grew at a slower pace.
On the other hand, basic metals and electrical equipment maintained their robust growth momentum.
Our analysis shows that 60.2 per cent of the items within the manufacturing sector grew slower than 5 per cent (vs. 50.2 per cent in May’23) and 36.6 per cent of the items reported contraction in Jun’23 (vs. 30.9 per cent in May’23), the report said.
