Stock Market

Pay hikes may not aid urban demand revival in H2FY17: UBS survey

Chillicious Bureau

Indian markets have been riding high lately on hopes of a good monsoon and Central Pay Commission (CPC) implementation driving consumption and lifting corporate earnings cycle towards the second half of FY17.

But, a UBS Evidence Lab survey report put together by Head of India Research Gautam Chhaochharia and Analayst Sanjena Dadawala puts forth a contrarian view.

The survey outcome hints urban demand recovery will be slower than the market/consensus expectations with CPC driving savings more than consumption providing limited push to urban demand recovery in the second half of FY17. It also raises chances of cuts to consensus earnings for FY17.

While the survey respondents retain hope of improved household incomes, inflation expectations remain deep-rooted which will limit real income increases and prompt savings over increased spending.

A major push to the consumption theory was expected from government households spending but the survey concludes otherwise.

Government households’ intention to spend remains irrespective of pay hikes with their spending lowers for the next six to 12 months lower or similar to non-government households.

Certain sectors, though, will get a fillip from CPC. Demand for cars is seen rising during FY18-19 and a pick-up in two-wheeler industry growth is also suggested in the second half of FY17. Among other consumer themes an improvement in paint, personal and homecare products is expected but, no meaningful change is expected in gold jewellery consumption and property.