The Hindu Business Line : Consumer sector may not be impacted: Analysts

LEADING stock market analysts, including SSKI Securities and Citigroup Smith Barney, have expressed optimism that despite the uncertainty over economic policies to be adopted by the new Congress-led Government, consumer spending is likely to remain unaffected. Thus, the FMCG sector is unlikely to witness any immediate slowdown; neither are automobile sector sales expected to be hit, at least in the short run.

However, in the case of sectors such as oil and gas, Citigroup has painted a less optimistic picture, taking into account the confusion over the new Government's disinvestment policies even as it has said that deregulation of pricing will not be affected. In the pharmaceutical sector also, Citigroup has expressed apprehensions on timely passage of the Patent Bill and the long-awaited pricing reforms for drugs.

"The consumer sector is unlikely to be impacted by the current change," Citigroup said in a strategy report released on May 13.

SSKI echoed these sentiments by asserting that consumer spending was led by favourable demographics and low interest rates and that public spending was unlikely to stop. "Good monsoons will further aid consumer spend," it said, while predicting that the rise in disposable incomes and low interest rates will aid FMCG and automobile markets.

The market analyst has forecast continued thrust on exports to developed markets and massive opportunities in manufacturing services to bolster its claim that growth is expected to be robust in several segments of the economy.

It has included Maruti, Bharti, Nicholas Piramal and Infosys as its recommended buys in addition to eternal favourites Ranbaxy, Reliance and Gujarat Ambuja.

"Privatisation by way of strategic stake sales, which was a key driver for the sector in the past, will be on hold... We expect status quo to continue as regards deregulation... However, there could be a delay in the resolution of the LPG/kerosene subsidy issue and LPG/kerosene losses weigh heavily on oil companies," it said.

The policy issues likely to be affected in the new regime include foreign investments, since plans for a hike in foreign direct investment limits may be hit in sectors such as retailing, telecom, insurance and banking, Citigroup said.

While identifying capital investment recovery, urban consumption, positive outsourcing trends and privatisation initiatives as key fundamental growth drivers, Citigroup has again upheld its belief that the consumer spending will thrive. "We believe urban consumption growth (driven by services, outsourcing, retail credit expansion) will be unaffected by the change in Government."

It has also cautioned against the new Government's policies on excise, especially in sectors such as tobacco. "The consumer sector is unlikely to be impacted much by the current change. We would have to wait and see what the new Government's policy on excise taxation is, especially in relation to cigarettes. Any major increase in excise on cigarettes could be negative for the tobacco industry."

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Consumer sector may not be impacted: Analysts