Good morning. In today’s edition: How Indian Inc missed the glaring message in India’s consumer demand data; why holding loyalty programmes with hotels and airlines matter; and stricter laws for bomb hoax calls to airlines.

THE TAKE

Did India Inc Miss India's Consumer Demand Dip Or Simply Ignored It? 

It has been clear for several months now that auto sales in India have slowed down. A key indication has been the rise in inventories at dealerships, now at a record 80 days. We’ve argued earlier that there was a probability that this reflected a larger slowdown in the economy and also the end of a post-Covid spike in spending.

A Kotak Securities report, that puts out stock picks for Diwali day trading, has now said that the brokerage was “cautiously optimistic” about India. The words seemed strange and distant given that no brokerage has really used the word caution to describe the Indian markets even until a few weeks ago.

Why The Sudden Caution? 

There have been subtle changes that have perhaps led to this outlook. The first to hit reverse gears were the foreign portfolio investors. They have reportedly sold a record $10 billion worth of stock this month. They were mostly heading to China in a desperate attempt to catch the market upside of a series of stimulus measures that the country’s government unveiled in recent weeks. It helped that Chinese valuations were low and Indian valuations were high.

All the fleeing investors and brokerages like Jeffries have so far sworn by India’s longer-term story even as they were dumping stock. Other brokerages like Bank of America and Macquarie similarly reduced India's weightage and increased China. 

But if Indian markets were indeed so full of promise, why are we seeing such an exodus?

Institutional investors always point to earnings as the driver of market prices and valuations. ‘Markets are a slave to earnings’ would be their usual response when asked about valuations. But the latest earnings season has been slow, in contrast to the past.

A Financial Express report said that net profits of a sample of 164 companies (including banks and financials) were up 7% year-on-year on the back of an 8% rise in revenues. But net profits would have fallen but for a 23% jump in other income. 

The article said that a miss in estimates across the board suggests the Street has been unable to gauge the extent of sluggishness in demand, whether for IT services or for consumer goods.

So far, the management of most companies has claimed reasons ranging from muted consumer demand, and elevated commodity prices, to higher advertising and promotion spending amidst competitive intensity. 

The “cautiously optimistic” Kotak report also pointed not to the earnings but to India’s strong macroeconomic position including an improving fiscal and inflation outlook. The report said that there was a modest improvement in laggard sectors of IT services and consumer staples. But the nuance lies in what the report is not saying, which is the absence of the usual cross-sectoral bullish tone which we have been used to seeing across brokerages. 

Glaring Data Points 

There are several other data points like Goods & Services Tax (GST) whose growth is down to 6.5%, the lowest in 40 months. This is almost on par with inflation and could arguably mean very little or no growth in volumes. Elsewhere, real estate purchases are slowing and the sales of old homes have slowed further.

While there are various positive data points as well, it seems like this is the end of a cyclical high-growth phase and not a straight line upward as people would have us believe. Quite likely this is a good development for the economy and markets as they cool off and resume their upward journey in good time. 

How did no one see this coming until the last moment? For example, Bajaj Auto announced suddenly that festive season sales for two-wheelers were clocking below expectations. UltraTech Cement reported a bigger-than-expected 36% decline in consolidated second-quarter profits on Monday, thanks to cement prices that are at a five-year low at the moment. 

Many companies have cited heat waves followed by elections followed by heavy rains across the country as reasons for the demand slowdown. By that logic, demand would have bounced back in the absence of these extraneous factors — which would have been now. Quite evidently, that is not happening, at least not yet. 

The question is to what extent did India Inc know about this fundamental problem with consumer demand? Did it not know or did it choose to stay silent and hope against hope? Neither scenario is comforting.

THE SWIPE

Why Holding Elite Status With Hotels And Airlines Matter

If you’re someone who travels frequently and looking for easy upgrades for hotel rooms and flights, holding elite status with hotel chains and airlines could be the key. Loyalty programmes are not just for gathering points and air miles but could get you some pretty sweet deals. Elite status through loyalty programmes really elevates your experience through the additional perks they get you. What are these benefits and how can you avail them? 

CORE NUMBER

2.3 lakh

This is the number of salaried individuals that have declared Rs 1 crore as a taxable income in assessment year (AY) 2023-24, an increase from 44,078 in AY 2013-14, reflecting rising incomes and improved tax compliance. Individual tax returns surged from 3.3 crore to 7.5 crore. Meanwhile, in the Rs 4.5-9.5 lakh bracket, filers made up 52% of total returns. While salaried individuals dominated the Rs 1-5 crore range, wealthier brackets leaned toward business owners. None of the 23 individuals with Rs 500+ crore income were salaried. Meanwhile, India added a billionaire every five days, bringing the total to 334—crossing 300 for the first time, according to the 2024 Hurun India Rich List.

CORE OBSCURE

In a surprising move, Adar Poonawalla, CEO of pharmaceutical firm Serum Institute of India, announced on Monday that his production company, Serene Productions, will acquire a 50% stake in Karan Johar's Dharma Productions for Rs 1,000 crore. This unexpected crossover between the pharmaceutical and entertainment industries raises questions about Poonawalla's strategic goals.

The binding agreement also allows Johar to retain the remaining 50% ownership. The announcement comes at a time when Johar has been attempting to sell Dharma Media for a while now. In the past, he has held talks with Reliance Industries for an acquisition deal, especially as the production house reported a 50% fall in revenues in FY24 to Rs 512 crore. 

The joint statement claimed that the collaboration between these entities will aim to “transform content creation, distribution, and audience engagement by integrating advanced technologies”. But beyond this obscure statement, the synergy between these two seemingly disparate sectors remains to be seen.

FROM THE PERIPHERY

—🏗️ Housing sales across major Tier-2 cities saw a significant 13% decline in the July-September quarter of 2024, according to a PropEquity report released on Monday. The report attributed the downturn to a higher base effect in 2023 meaning that housing sales were exceptionally high in 2023, making any normal fluctuation in 2024 appear as a decrease in comparison. A dwindling supply of new project launches has also contributed to the decline, the report added. New launches in the top 30 Tier-2 cities plummeted by 34%, with only 28,980 units introduced in the July-September quarter compared to 43,748 units in the same quarter last year. This decline is likely due to a combination of factors, including rising interest rates, increased construction costs, and affordability challenges faced by homebuyers.

—🧑‍⚖️ The government is considering stricter laws to address the increasing number of false bomb threats to airlines, which have surged in recent weeks. Union Civil Aviation Minister Ram Mohan Naidu stated on Monday that legislative action is being explored, including amending Aircraft Security Rules and potentially adding perpetrators to a no-fly list.  This comes in response to a wave of bomb threats against Indian airlines, including IndiGo, Vistara, Akasa Air, and Air India, impacting over 90 flights in the last two weeks.  

—😷 As autumn settles in, northern India finds itself grappling once again with the harsh reality of pollution and deteriorating air quality. As of Monday, Delhi’s air quality index stood at 239—far above the World Health Organization's (WHO) satisfactory level of 100. Thick smog blankets cities, complicating daily life for residents. This toxic haze poses serious health risks and significantly hampers productivity. The annual decline in air quality during the crop-burning season has become a predictable nuisance, as a result of disrupting commutes, delaying flights and making it increasingly difficult for outdoor labourers to catch their breath.

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