Rising Thali Cost, Muted FMCG Growth, Booming Luxury Sales: Why the K-Shaped Recovery Still Stands

 While State Bank of India (SBI) economists have dismissed the ‘K-shaped recovery’ critique in a report in January, economic data says otherwise. Interestingly, the same was the case last year as well.

A K-shaped economic recovery is characterised by diverging trends in different segments of the economy, where some sectors or groups experience rapid growth and improvement, while others face prolonged challenges or decline.

Several indicators, such as thali cost, FMCG (Fast-moving consumer goods) earnings, and luxury goods demand, may provide a more comprehensive understanding of how different segments of the population are faring.

Thali cost

According to Crisil, a ratings agency, a vegetarian thali was costlier yearly by 12% in December.

A vegetarian thali comprises roti, vegetables (onion, tomato, and potato), rice, dal, curd, and salad.

A non-vegetarian thali includes chicken instead of dal.

The report said that the vegetarian thali cost was led by a substantial increase of 82% and 42% in the prices of onion and tomato, respectively, the Hindu BusinessLine reported.

“Prices of pulses, which account for 9% of the veg thali cost, also increased 24% on-year,” it said. However, the non-veg thali declined 4% on a yearly basis. “The decline in the cost of the non-veg thali was due to a 15% decline in broiler prices on-year amid higher production,” it said.

Swati Arora, economist with HDFC Bank, told the business daily that food inflation is expected to remain high, driven by higher pulses, cereals and sugar prices, which is likely to exert upward pressure on headline inflation.

Besides, weak Rabi sowing progress in pulses is also a concern.

On the positive side, moderation in vegetable prices with the onset of the winter season is likely to keep the upside on food inflation in check.

Analysing the monthly and yearly cost of a standard thali could provide insights into the affordability of basic necessities for the general population. A rising thali cost could indicate inflationary pressures impacting the affordability of essential food items for certain income groups.

Luxury sales

India’s largest realtor DLF on January 8 said that it sold entire 1,113 luxury flats in a project (DLF Parivana South) in Gurugram for Rs 7,200 crore within three days of pre-launch.

Meanwhile, the country’s top luxury car brand Mercedes-Benz said that 2023 was its best year in the India market, as it sold 17,408 four-wheelers in 2023, up 10% year on year.

Audi India announced that its sales in 2023 grew by 90% to 7,931 units. In the coming days, BMW and other luxury players in this niche segment are also expected to report record sales,

In comparison, the affordable and low-cost housing segment has witnessed a decline in volume in 2023. According to the Hindu, demand for affordable housing has declined due to high taxes, rising land costs, and increased home loan interest rates.

The government defines affordable housing as residential units that are 60 square metres at, or under Rs 45 lakhs in “metro areas”. Metro areas are Mumbai, Delhi National Capital Region (NCR), Chennai, Bengaluru, Hyderabad, Kolkata, Kochi, Pune and Ahmedabad.

Developers told the daily that sharp rises in land value, direct and indirect taxes, as well as escalating costs of construction materials and other inputs, have resulted in their incapacity to deliver affordable housing.

“As a result, almost none of the projects in the metros can take the benefit of provisions of affordable housing such as Section 80IBA,” Kapil Gandhi, managing director, Sigma One Universal, a Pune-brd real estate company, told the daily. “Of every Rs 100 invested in real estate, 35% to 45% goes directly to the government, which includes heavy premiums, direct and indirect taxes, and GST. Sometimes these do not come with a set-off and other costs. So a good property can not cost less than Rs 65-75 lakh in any metro,” he said

FMCG earnings

FMCG companies saw a subdued growth in overall revenues during the July-September quarter of FY24. According to brokerage firms, the impact on sales growth of the sector during the period was largely due to the delayed festive season and from the price-hike anniversarisation.

“Reported earning growth remained strong in Q2, albeit this was largely led by margin expansion off a low base. Demand trends remain sluggish, which is further exacerbated by increase in competitive pressures especially from smaller players,” said Jefferies.

Analysts told the Financial Express that the Q2 earnings were a mirror image of the Q1FY24 performance. This is because growth was largely driven by margin expansion, while revenue growth stood in low single digits due to muted volume growth.

In November, Business Standard had reported that persistent low demand in the FMCG sector is causing supply chain congestion, leading to an increase in inventory days, with stocks accumulating at distributors.

A distributor told the business daily that the “festival season demand did not offer any respite”, and “the summer wedding season remained weak, causing a build-up in inventory for the past few months.”

SOURCE: THEWIRE