India’s festive retail season is witnessing a noticeable decline in consumer spending, with initial e-commerce sales falling short of last year's numbers. High inflation in essential food items and elevated airfares are pressuring household budgets, leading to lower discretionary spending. For investors, this slowdown points to potential volume pressure for retailers and consumer goods companies this quarter.
The peak festive shopping period in India is facing a tough start, with consumer demand failing to meet initial expectations. During the first four days of major e-commerce sales, the total gross merchandise value was estimated between Rs 29,800 crore and Rs 30,900 crore. This is a decline from the Rs 33,200 crore recorded during the same period last year, signalling that buyers are being more cautious with their spending.
Discretionary spending is seeing the most impact, particularly in the consumer electronics sector. Prices for smartphones and home appliances have risen by as much as 40% in recent months, largely due to component shortages and intense competition for resources. According to data from Counterpoint Research, smartphone unit sales contracted by 16% year-on-year during the start of the festive window. Retailers are also offering smaller discounts, which are 35% to 40% lower than those provided in the previous year, further discouraging budget-conscious shoppers.
Rising costs for daily essentials are also limiting the money available for non-essential purchases. Food inflation remains a concern, with retail food prices rising 7.74% in September. Specific staples like sugar, edible oils, and onions have seen sharp price increases, with sugar inflation climbing nearly 30% year-on-year according to data from the Ministry of Statistics and Programme Implementation. This is forcing many food and beverage businesses to either hike prices or reduce package sizes to manage their own costs.
Travel plans have also become more expensive, acting as a further drain on household savings. Average domestic airfares have surged 68% compared to the previous year, driven by higher aviation turbine fuel prices. Major airlines like IndiGo and Air India have passed on these costs, leading many families to opt for shorter trips or alternative modes of transport instead.
For investors, the current consumption trends suggest that volume growth could be a major challenge for the retail, consumer electronics, and FMCG sectors in the upcoming quarters. While some companies may maintain revenue growth through price hikes, the lack of growth in sales volumes indicates that consumers are pushing back against higher prices. Investors may want to track upcoming quarterly reports to see whether companies can maintain profit margins despite the drop in demand, or if the increased cost of living will continue to weigh on their ability to grow sales.