F
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R
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10 June 2019
F
RIEND
O
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CONOMY
Private consumption finally moderating…
…however, income/wealth indicators have also weakened
The official GDP statistics indicate that real private consumption expenditure (PCE) grew 7.2% YoY in 4QFY19 and 8.1%
in FY19, better than the 7.4% growth in FY18 and close to the highest growth in seven years. In nominal terms too, PCE
growth of 12% was close to the highest level in six years – a trend similar to that shown by listed FMCG companies.
While these numbers don’t suggest any slowdown in PCE, monthly leading indicators paint a very different picture.
An analysis of 22 monthly indicators linked with PCE suggests that both rural and urban consumption slowed
significantly in FY19 (the former slowed more than the latter). As many as 14 out of the 22 indicators witnessed
deceleration last year.
We have been arguing that the current model of consumption-driven growth is unsustainable because it is leading to
lower savings, and thus creating financing constraints for investment recovery. The most ideal scenario for sustainable
future growth should be driven by savings-led investments, for which consumption growth has to lag income growth.
Although consumption (suggested by monthly data) appears to be moderating now, the worry is that four out of six
income/wealth-linked indicators have also shown weaker growth in FY19. If so, gross domestic savings (GDS, led by
households) may have declined further last year, keeping our concerns intact.
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The strong growth in PCE
suggested by official GDP is
in line with sales growth of
listed FMCG companies but
in contrast to numerous
monthly leading indicators
of consumption.
Discord between official consumption estimates and monthly leading indicators:
Real GDP growth weakened to 20-quarter low of 5.8% YoY in 4QFY19, driven by real
investments that weakened (from double-digit growth) to 3.5%, even as private
consumption expenditure (PCE) continued growing decently at 7.2% vis-à-vis 8.1% in
3QFY19. On an annual basis, nominal PCE growth picked up from 10.6% in FY18 to
12% last year, close to its highest level in six years — a trend similar to the one seen
in aggregate sales of listed FMCG companies
(Exhibit 1-2).
Though organized/listed
companies may have benefitted from the recent reforms (also incorporated into
GDP estimates), the stronger growth in FY19 is in stark contrast to the numerous
monthly leading indicators related to consumption, which tell a different story. In
this note, we analyze 22 such indicators – divided between rural (12) and urban (10)
sector, which help us gauge possible trends in private consumption, income and
savings in the last few years.
Exhibit 2:
Sales growth of 21 FMCG companies at six year
high in FY19
Sales growth (%, YoY)
15.2
1.2
5.8
5.3
(0.9)
1.4
4QFY19
FY13
FY14
FY15
FY16
FY17
FY18
FY19
10.7
11.3
6.4
8.1
12.8
Exhibit 1:
Major drivers of India’s real GDP growth (pp)
Consumption
Discrepancy
0.1
8.0
3.6
4.9
(0.7)
GCF
GDP (% YoY)
3.7
7.0
6.6
(2.8)
(0.5)
1QFY19
2QFY19
3QFY19
3.8
6.6
5.3
(0.2)
(2.4)
Net exports
10
6
2
(2)
(6)
3.9
8.1
6.6
(2.7)
(pp)
4QFY18
FY16 and FY17 data are affected by IND-AS adoption
Source: Central Statistics Office (CSO), Capitaline, MOFSL
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
Yaswi Agarwal
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

F
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Rural consumption during
the past five years grew at
less than half the pace of
growth in the previous
decade.
R E
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Rural consumption worsened during FY15-19 vis-à-vis FY05-14…:
Farm sector has
been under stress during the past few years, a fact that is well recognized by policy
makers and other market participants. In absence of official statistics on rural
consumption, we have compiled a list of 12 monthly indicators related to private
consumption in the rural economy. Our analysis clearly suggests that rural
consumption during the past five years grew at less than half the pace of growth in
the previous decade
(Exhibit 3).
During FY15-19, rural consumption (estimated as
simple average of all 12 monthly indicators) grew at an average of only 3%, less than
half of the 8.4% in the previous five years (FY10-14) and 8.3% average growth during
FY05-09. As many as eleven (11) out of twelve (12) indicators posted weaker growth
(or faster decline) during the recent 5-year period.
Exhibit 3:
Rural sector has definitely worsened during the last five years
No.
Indicators
Unit
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% YoY
% deviation
% YoY
% YoY
2
1.
Agri nominal GVA
2.
Real agricultural wages
3.
Real non-agricultural wages
4.
Two-wheeler sales
1
5.
Terms of trade
6.
Tractor sales
2
7.
Farm exports
3
8.
Fertilizer sales
9.
Agricultural credit
10. IIP: Food products
4
11. South-west monsoon
12. Railways passenger traffic
Simple average of all indicators
5-year period average
FY05-09 FY10-14 FY15-19
11.7
15.4
7.6
0.3
6.9
2.3
(1.1)
5.2
2.0
7.1
15.1
7.5
0.6
4.1
3.8
6
n/a
12.6
5.5
20.2
20.8
(1.5)
5
7.2
1.7
3.2
31.9
14.6
10.9
6.6
4.5
3.2
(0.0)
(3.9)
(8.5)
6.6
3.5
0.0
8.3
8.4
3.0
1
FY15
8.7
1.5
2.7
7.9
6.1
(10.0)
(9.5)
10.6
15.0
6.0
(11.9)
(2.2)
2.1
Annual data for last five years
FY16
FY17
FY18
6.4
12.1
7.0
1.4
1.8
4.0
2.3
1.0
2.3
3.0
6.9
14.8
16.9
4.5
(1.8)
(8.9)
15.7
20.5
(16.2)
2.6
15.5
7.1
(7.0)
1.8
15.3
12.4
3.8
(5.6)
(5.6)
9.4
(13.7)
(2.6)
(4.9)
(1.0)
0.8
0.9
0.6
3.5
6.1
FY19
4.0
2.7
1.9
4.8
(6.5)
10.2
0.3
3.6
7.9
11.9
(9.7)
1.8
2.7
Estimated using the ratio of wholesale prices index (WPI) for farm input and farm output
Exports of plantation items (tea, coffee etc.) and agricultural produce (rice, vegetables, fruits, vegetables, etc.)
3
4
Summation of domestic production (IIP) and imports volumes
June-September period
5
6
FY06-FY09 period
Data for FY11-FY14
Source: Reserve Bank of India (RBI), CSO, Various other sources, CEIC, MOFSL
Rural consumption grew at
15-year low of 0.6% YoY in
FY16, which picked up to
3.5%/6.1% YoY in
FY17/FY18, before
moderating to 2.7% in FY19.
…with FY19 seeing renewed weakness:
While rural consumption was very weak in
FY16, with a glance at
Exhibit 3,
it is clear that it recovered in the subsequent two
years before weakening again in FY19. Rural consumption grew at 15-year low (since
we started compiling data) of 0.6% YoY in FY16
(Exhibit 4 on the next page),
which
subsequently picked up to 3.5%/6.1% YoY in FY17/FY18. As monsoons weakened
again in FY19 (south-west monsoon saw a deficit of ~10%), rural consumption
growth weakened once again to sub-3%.
Eight (8) out of twelve (12) indicators witnessed slower growth last year, but the
sharp deceleration in rural consumption was led by 14-year low growth of only ~4%
in nominal farm GVA and the unfavorable movements in prices (called terms of
trade). Farm output prices grew only 0.8% last year, while farm input prices
increased at a rate of ~8%, leading to terms of trade declining 6.5% in FY19. Further,
after growing at six-year high of 15.5% in FY18, farm exports also grew very weakly
— at only 0.3% last year – the slowest growth in three years.
10 June 2019
2

F
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Exhibit 4:
Rural consumption weakened again in FY19…
(% YoY)
11.8
10.9
Rural consumption
13.413.3
9.5
6.4
3.7
2.6
5.7
2.1
3.5
0.6
FY17
FY19
6.1
2.7
R E
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Exhibit 5:
…led by terms of trade and farm output growth
25
20
15
10
5
0
(5)
(10)
(6.5)
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
4.0
Nom agri GVA
(% YoY)
Terms of trade*
5.3
FY05
FY07
FY09
FY11
FY13
FY15
Source: CSO, Office of economic advisor (OEA), MOFSL
* Farm output prices divided by farm input prices based on WPI
Urban consumption during
the past five years grew at a
similar pace of growth seen
in the previous five years.
Urban consumption, however, did much better during FY15-19…:
Like rural
consumption, there are no official statistics on urban consumption too, and thus, we
have compiled a list of 10 monthly indicators related to private consumption in the
urban economy. Our analysis suggests that urban consumption (estimated as simple
average of all 10 monthly indicators) during the past five years grew at almost a
similar pace of growth in the previous five years
(Exhibit 6).
During FY15-19, urban
consumption grew at an average of 9%, similar to the growth of 9.4% seen in the
previous five years (FY10-14); but, much lower than the stupendous growth of
16.3% witnessed during FY05-09 (based on eight indicators). Of the ten (10) monthly
indicators, six (6) variables posted slower growth, while the remaining four (4)
posted faster growth during the recent 5-year period.
Exhibit 6:
Urban consumption was relatively better during FY15-18 before weakening in FY19
5-year period average
FY05-09 FY10-14 FY15-19
1.
Nominal non-farm GVA
% YoY
15.9
14.1
11.3
1
2.
Real salary & wages
% YoY
21.9
4.7
5.3
3.
Headline non-food CPI
% YoY
5.0
9.6
5.1
4.
PVs sales
% YoY
11.7
10.9
6.2
5.
Personal credit
% YoY
26.5
12.5
17.1
6.
IIP: Consumer durable goods
% YoY
21.4
8.9
3.3
7.
Airline passenger traffic
% YoY
20.7
8.9
17.5
8.
Petrol consumption
% YoY
7.4
8.8
10.6
2
9.
Real house prices
% YoY
n/a
4.4
3.4
3
4
10. Non-farm consumer imports
% YoY
n/a
11.0
10.7
Simple average of all indicators
% YoY
16.3
9.4
9.0
1
Based on common sample of 1,195 listed companies
3
Textiles, electronics, leather and transport items (USDm)
No.
Indicators
Unit
Annual data for last five years
FY15
FY16
FY17
FY18
FY19
11.5
9.9
10.6
12.0
12.6
8.3
6.4
2.2
4.2
5.1
5.7
4.9
4.7
4.8
5.6
3.7
7.3
9.2
7.9
2.7
15.5
19.4
16.4
17.8
16.4
4.0
3.3
3.0
0.8
5.3
17.0
19.2
20.0
18.1
13.0
11.4
14.5
8.8
10.1
8.1
5
9.1
5.1
3.3
1.0
(1.6)
13.6
6.6
4.5
21.4
7.4
10.0
9.7
8.3
9.8
7.5
2
Weighted average of 10 major cities deflated by CPI
4
Data for FY11-FY14 period
5
Data for Apr-Dec FY19
Source: RBI, CSO, Various other sources, CEIC, MOSL
Urban consumption,
nevertheless, posted 5-year
slowest growth of 7.4% YoY
in FY19 v/s an average of
9.2% growth in the previous
four years.
…before weakening in FY19:
Urban consumption, nevertheless, posted 5-year
slowest growth of 7.5% YoY in FY19 compared to an average of 9.4% growth
witnessed in the previous four years
(Exhibit 7).
As many as 60% of indicators (six (6)
out of ten (10)) witnessed slower growth last year; but the weakness in urban
consumption was led by 5-year lowest growth of only 2.7% in passenger vehicle (PV)
sales, 6-year slowest growth in petrol consumption and at least 15-year lowest non-
food inflation
(Exhibit 8).
Further, airline passenger traffic also grew 13% last year –
reasonably strong, but the weakest growth in five years.
10 June 2019
3

F
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Exhibit 7:
Urban consumption posted 5-year slowest growth
in FY19…
(% YoY)
20.619.5
17.116.6
Urban consumption
R E
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Exhibit 8:
…led by five-year-low growth in PV sales and
petrol consumption
30
20
PV sales
(% YoY)
Petrol consumption
14.6
7.8
10.1
10.0
6.2 6.0
10.0 9.7
8.3
9.8
7.5
10
0
(10)
8.1
2.7
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
Source: CSO, Office of economic advisor (OEA), MOFSL
Conclusion: Weak consumption does not imply higher savings
Overall, after recovering in FY17 and FY18, rural consumption withered in FY19,
along with 5-year slowest growth in urban consumption. This set of information
doesn’t concur with the faster growth in PCE recorded under GDP.
Although consumption
appears to have definitely
moderated in FY19,
personal income also seems
to have weakened last year.
We have always argued that the current economic model of consumption-driven
growth is unsustainable because it is leading to lower savings, and thus creating
financing constraints for investment recovery. Although consumption appears to
have definitely moderated in FY19, personal income also seems to have weakened
last year. While rural wage growth (both agricultural and non-agricultural) remained
subdued
(Exhibit 9),
urban income (suggested by salary & wages of listed
companies) grew at 3-year highest pace in FY19
(Exhibit 10).
Real house prices,
however, declined for the first time in eight years showing mixed signals for the
wealth of urban consumers
(Exhibit 10).
Therefore, while rural income definitely
continues to grow at a slower pace, urban income is showing mixed signs. If so,
notwithstanding weaker consumption, gross domestic savings (GDS, led by
households) may have declined further last year.
Exhibit 10:
…but urban income showed mixed signs
20
15
10
5
0
(5)
FY12
FY13
FY14
FY15
FY16
FY17
FY18
5.1
(1.6)
FY19
Real S&W
(% YoY)
Real house prices
Exhibit 9:
Rural income growth remained subdued in FY19…
14
12
10
8
6
4
2
0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Real agricultural wages
(% YoY)
Real non-agricultural wages
Source: CSO, RBI, Capitaline, MOFSL
10 June 2019
4

F
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R E
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Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>=15%
SELL
< - 10%
NEUTRAL
< - 10 % to 15%
UNDER REVIEW
Rating may undergo a change
NOT RATED
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the
inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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10 June 2019
5

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R E
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This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in
nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing
in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views
expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade
securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from
time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or
may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in
all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost
revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such
misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person
accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980
4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080
1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-38281085.
Registration details: MOFSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst:
INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers
PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal
Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd.
offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products.
* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOFSL would be used until receipt of new MOFSL registration numbers.
10 June 2019
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