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Good morning.  In today’s edition–India's roaring GDP growth isn't reflected in car sales; why VCs continue to back edtech startups despite past failures; slowdown hits the Indian box office, and how Indian banks are scrambling to woo NRI deposits.

THE TAKE

Missing in Action: Where Have India's Car Buyers Gone?

Indian businesses are seeing a cyclical downturn as is quite evident from the slowing earnings for several companies, including consumer-facing companies.

How long could this slowdown last?

It turns out that it is becoming tougher to project that mostly for two reasons. First, no one seemed to see the slowdown coming or at least kept it a closely guarded secret if they did.

Second, there was a clear post-COVID surge in spending, evident in many parts of the world and of course India.

How long will it be before normalcy returns, now that the effects of this surge, reflecting higher than normal consumption, have started to wear off?

The answer is not clear.

Moreover, there are some surprising and even shocking insights within the automotive market which should also hold lessons for the rest of the economy. In August, Maruti Suzuki chairman R.C. Bhargava said that low-cost and small cars were necessary for India’s economic and social conditions. And that a temporary setback, which is falling sales, would not change strategy. At that point in the financial year, Maruti’s mini and compact segment sales had fallen some 12% while utility vehicles were up over 16%.

Indeed, for most of India’s automotive industry, sport utility vehicles (SUVs) and premium cars have been doing well or better, even as dealers were staring at record inventories of over 80 days. Last week, Mr Bhargava in an interview with the Business Standard sounded more grim. According to him, while gross domestic product growth is expected to be over 7% this year, the car market is not following suit. 

The pent-up demand for cars that emerged post-pandemic, combined with supply constraints like the non-availability of semiconductors affecting production, has now dissipated, he acknowledged, adding that they were seeing negative growth in the sub-Rs 10 lakh car segment, which represents two-thirds of the market. Only the over-Rs 10 lakh segment is growing, so overall growth is muted. 

Clearly, a 7% growth rate cannot be sustained when one-third of the market is growing while two-thirds is shrinking, he said. One reason according to Bhargava is that higher safety standards have meant more expensive cars and the load is higher on smaller cars.

As a Federation of Automobile Dealers Associations (FADA) head told me several months ago, incomes have not kept pace with the rise in prices for small cars, up from Rs 6 lakh to Rs 10 lakh.  

The interesting point that the Maruti chief tangentially raises of course is why GDP growth numbers unlike before are not running parallel with car sales. 

This by the way is something other consumer-facing industries are also pointing out that they are seeing a divergence between overall economic growth numbers and their own growth. 

Possibly this reflects the heavy weightage of Government rather than private spending in GDP numbers. Possibly.

Bhargava also suggests that this could be one reason why two-wheeler sales have been doing well in recent years, people are not upgrading to cars as they would traditionally do but upgrading to two-wheelers. 

This is the surprising part because it means a behavioural shift, caused either by prices or by some other factor, like the attractiveness of the latest generation of two-wheelers. 

Remember until now it was a fairly linear progression from two-wheelers to cars for families in India.

So when could demand return? 

This is the somewhat shocking part.
Bhargava says growth will not exceed 3-4% for a few years until economic growth helps bridge the affordability gap in the lower end of the market. “So, the 7-8% per annum growth will take a while to return — I don’t know exactly how long,” he said.

So what is Maruti or presumably other companies in a similar boat doing?

Bhargava says since it's clear that the passenger car market in India won’t grow very fast, they need to focus on exports. 

“We are tapping into markets like South America, South Africa, West Asia, and East Africa, among others. We are also starting with EVs and see a good market in Europe. Few companies make small internal combustion engine (ICE) cars now, but there is still a market for them, he says.

The good news for Maruti is that its market is not the United States. 

Trump's new tariff regime, if implemented next year, could negatively impact exporting businesses worldwide.

That's a fresh set of problems people would rather kick down the road.

DECODE THE NEWS

Why Venture Capitalists Back Indian Edtech Despite Failures

Indian edtech: It's been a wild ride! Remember when Byju's was valued at $22 billion? Now it's battling lawsuits and struggling to repay loans. Dramatic as it sounds, that's the edtech life in India—full of unexpected twists and turns.

Funding in the sector peaked at $4.9 billion in FY22, then crashed to pre-2017 levels. Yet, venture capitalists haven't lost hope. They're simply shifting their focus from K-12 and test prep to the shiny new toys of upskilling and B2B SaaS. Upskilling platforms that TheCore spoke with including Eruditus and Upgrad, are generating impressive revenues but remain focused on achieving profitability.

But it's not all sunshine and rainbows. Online degrees still face acceptance issues, particularly among human resource (HR) leaders. These courses also involve high customer acquisition costs (CAC), a challenge for edtech companies of all kinds. And let's not forget the ethical tightrope these companies walk, with concerns around misleading promises and questionable foreign degrees. So, buckle up, because the Indian edtech rollercoaster isn't slowing down anytime soon!

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CORE NUMBER

Rs 8,951 crore

This figure represents the total box office collections from January to October 2024, marking a 7% decline compared to the same period last year. Despite exhibitor initiatives to boost audience numbers—such as re-releasing films and offering discounted food and beverages—collections remain sluggish. However, industry reports suggest that a wave of upcoming Hindi and Telugu releases in November and December could revitalize ticket sales, potentially surpassing 2023 figures or at least closing the gap. While significantly lower than 2022 and 2023, the 2024 collections align more closely with 2021 figures, indicating a gradual recovery for the Indian film industry from the lingering impact of the pandemic.

FROM THE PERIPHERY

—📈 Although there is a slowdown in overall FMCG and essential consumption, the fragrance industry in India is on an upward trend. The fragrance segment has grown by 12% year-on-year this calendar year up to September, according to NielsenIQ data. This growth is fueled by a 26% increase in sales of roll-on deodorants, a key product in personal care segment, which itself grew by 6.2%. In comparison, the overall FMCG industry expanded by only 5.7%. Major players like Godrej Consumer Products, Emami, ITC, and Shoppers Stop have reported robust sales of fragrance products for the first half of this financial year. NielsenIQ values the fragrance industry in India at Rs 4,771 crore.

—📉 Eight of the top 10 most valued publicly traded companies experienced a significant decline in market capitalization, with a combined loss of Rs 1.65 lakh crore in last week's trading.  This downturn aligns with a weak trend in the equities market, as the benchmark Sensex fell by 2.39% amid growing concerns over rising inflation and disappointing corporate earnings. HDFC Bank and State Bank of India were among the hardest hit, with their market capitalizations declining by Rs 46,729.51 crore and Rs 34,984.51 crore, respectively. Other companies that suffered substantial losses included Hindustan Unilever, Reliance Industries, ITC, and Bharti Airtel.

—⛽ Compressed Natural Gas (CNG) retailers, including Indraprastha Gas Ltd and Adani Total Gas Ltd, are considering raising CNG prices following a second reduction in cheaper input gas supplies within a month. However, government officials are urging these retailers to provide a cost breakdown to justify any price hike. Officials argue that the retailers operate on substantial margins and can absorb the additional cost of replacing lost volumes with slightly higher-priced gas from new wells or imported Liquefied Natural Gas (LNG). Effective November 16, the government cut supplies of low-priced natural gas from old fields to city gas retailers by up to 20%. This was the second such reduction, following a 21% cut on October 16th.

—💸 Indian banks are ramping up their efforts to woo non-resident Indians (NRIs), particularly in the remittance-rich region of Kerala. Recognizing the value of this stable and resilient deposit base, banks are expanding their presence in the Gulf countries, according to reports. Data shows that Kerala leads the pack in attracting NRI deposits and remittances. It's estimated that each household in the state receives a substantial Rs 2.2 lakh annually from abroad. As of June 2024, the total value of NRI deposits had swelled to a whopping Rs 2.74 lakh crore, marking an 11% year-on-year increase..

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