It’s been a mixed year for Indian industry. A round-up of few of the major industries show that segments in the auto sector such as SUVs grew robustly, while two-wheelers saw tepid growth on the back of slow rural offtake. Buffeted by global forces, the IT sector’s performance has been lacklustre with the glory years of double digit growth behind it, for now.

But FMCG marketers are hopeful that rural and volume growth will come roaring back in the next year. Food inflation continued to impact rural demand, reducing discretionary spends and impacting sales of those companies which get a large chunk of sales from rural India. It was a case of mixed fortunes for aviation, as Go First shut its shop, but with two big ticket orders for planes and domestic traffic sizzling. And, of course, the equity markets will end the year on a red hot streak. Read on to know how various sectors performed this year.

Auto in full-throttle; SUVs lead the charge

The calendar year 2023 brought cheer to all categories of the automotive sector when compared with 2022. The passenger vehicle industry hit a new high annual volume with the continuing boom in the SUV segment, which achieved record growth in sales during the current calendar year.

Combined sales of cars and SUVs (all segments put together) are likely to record a high single-digit growth at 3.8-3.9 million units for 2023 when compared with 3.66 million units in 2022. However, total car sales will be lower than in 2022 due to the continuing customer shift to SUVs and the absence of new launches in the car segment. With strong double-digit growth, SUV volumes are expected to be the highest ever at about 2.3 million units for 2023. The easing of semiconductor shortage in the second half and festive season sales boosted the volumes of SUVs this year. Overall, it was a boom year for the PV industry amid supply chain challenges in the first half.

For the commercial vehicles industry, which maintained a steady growth in the post-pandemic, phase, 2023 proved to be the year of a strong rebound in bus sales, supported by opening up of offices and educational institutions, and replacement demand supporting the growth. Though the truck segment hit a speed bump during April as a result of the BS VI 2.0 transition and the consequent price increases, the demand improved in the following months and the September quarter saw a good increase in volumes. Overall, the demand outlook remains favourable for the industry due to the focus on infrastructure development.

The two-wheeler segment was the only category that saw a fragile recovery in the post-pandemic phase, mainly due to subdued demand in the rural-driven entry bike segment, which accounts for the bulk of the motorcycle volumes. Many factors including a steep increase in the prices of two-wheelers pulled down demand in the entry segment. However, with improved sentiments, bike sales started to move northwards and this festive season reported a strong growth in two-wheeler sales. Overall, 2023 will see both bike and scooters report positive growth.

IT: Red hot to lukewarm

The Indian IT industry this year has transitioned away from the vigorous double-digit growth phase that characterised its momentum a year ago. Faced with macro-economic challenges and a potential deceleration in Western economies, the sector has encountered a notable slowdown in revenue growth.

Navigating through these headwinds, the $245 billion industry is currently grappling with the task of identifying growth avenues within a challenging market landscape.

The Indian IT industry’s lacklustre performance this year stemmed from a convergence of diverse factors. Geopolitical conflicts worldwide cast a shadow of uncertainty. The downfall of SVB (Silicon Valley Bank) triggered caution in tech spending within the BFSI sector. Moreover, concerns about a potential economic slowdown prompted a reduction in spending on significant digital transformation projects across sectors.

Further, companies also encountered challenges in translating their deals into revenue. Despite the resilience of deal wins and a robust pipeline, the process of ramping up and implementing these deals has been delayed. Enterprises are exercising caution, waiting for greater clarity on the potential impact of a second slowdown

As business has slowed down, the sector which is one of the significant white-collar job provider, has cut down on hiring. In the last 12-month gross IT hiring addition witnessed an all-time low of 14 per cent, down from a peak of 40 per cent in Q1 FY22 and significantly below the 2017-2019 average of 21 per cent, according to analyst firm ISG. Companies have also been increasingly shifting to the work-from-office model, as most top-tier IT firms have called back employees for at least some days of the month.

Despite the prevailing overreaching challenges and uncertainties, the Generative AI wave has emerged as a silver lining for IT companies. Most IT firms, including top-tier firms TCS, Infosys, Wipro and others, have made efforts to cash in on the opportunity by building specified AI services for clientele.

Omkar Tanksale, Research Analyst at Axis Securities, summarises that the year has been marked by skepticism due to uncertainties from the North American economy, leading to spending delays and an unexpected lack of revenue growth. However, supply side constraints this year have eased off with reduced hiring. Mid-cap companies, particularly in Engineering Research & Development, have outperformed large corporations. “Sectors like manufacturing, high-tech, automotive, and aerospace remained robust, contrasting with a relatively weaker performance in BFSI,” he said.

Analysts expect growth to be tepid in seasonally weak Q3, and see potential recovery in Q4. Despite uncertainties causing spending delays, the demand for digital and cloud transformation persists, and recovery can be expected to be swift once uncertainties subside.

FMCG: Premium to price cuts

Premiumisation, acquisitions, price cuts, and AI-based personalisation were the key themes in the FMCG industry in 2023. While consumers opted for personalised products, companies saw an uptick in demand for premium products across categories and high operating margins despite price cuts.

FMCG majors acquired D2C brands keeping in mind valuations and synergies in 2023. FMCG companies also increased their sales through e-commerce by targeting consumers through differentiated product offerings.

“Revenue growth has come in lower for the 9M period at 8 per cent (vs 12.5 per cent in the previous 9M period last year). This can be attributed to lower price-led growth in the current fiscal (when compared to YoY) while volume-led growth is better compared with last fiscal, despite sluggish (yet improving) rural demand. Companies with a greater share of contribution coming from the rural market continue to see mid-single-digit growth. Despite price cuts and increased marketing spending by the FMCG majors, the operating margins have come in higher at 21.9 per cent for the 9M period in the current calendar year (vs 20.6 per cent margin in the corresponding period last CY). This is at the back of moderation in the input prices,” says Anuj Sethi, Senior Director, Crisil Ratings Ltd.

FMCG majors also saw a rise in competition from unorganized region-specific players as raw material prices moderated.

“After two consecutive years of realisation-led growth, volume growth has seen a recovery in the current fiscal, albeit, still low. The rural market is seeing a revival, though a bit slow. Unseasonal rains, high food prices, and weak monsoon have impacted the overall rural affordability and hence its recovery. However, we expect rural demand to witness improvement in fiscal 2025 led by lower inflationary pressures and increasing agri and non-agri income levels. Despite subdued rural demand, companies continue to invest in strengthening their distribution network,” adds Sethi.

With the reduction in inflation, the FMCG industry also saw a pick-up in discretionary spending among consumers with aspirational demand from smaller towns and cities benefiting traditional FMCG companies according to Crisil.

“In 2023, sustainability took centre stage as consumers demanded eco-conscious choices. At Bikano, we embraced this challenge by introducing packaging that can be recycled, products made with sustainable ingredients, and initiatives to reduce waste. Across the industry, companies are leveraging AI, VR, and AR to create personalised experiences for consumers. This commitment extends to the growing e-commerce presence, where convenience meets quality. Big data analytics and AI will continue to shape the industry, offering insights into consumer behavior and driving personalised interactions.” says Manish Aggarwal, Director, Bikano, Bikanervala Foods.

However, during the year food inflation, weak monsoon, and unseasonal rains impacted the rural demand. “The food rates have seen a major increase. The prices of ahrar(red gram) and wheat increased by 40 per cent and 15 per cent respectively in comparison to the last year. Although the government tried to keep control of the prices the global situation and the climate conditions were such that nothing much could be done,” explains Ashish Khandelwal, Managing Director, BL Agro.

Aviation: In full flight

It was a year of mixed fortunes for Indian aviation. Two big ticket aircraft orders and record domestic air traffic growth reinforced India’s credentials as a fast growing high potential aviation market. However, 2023 also saw the collapse of low cost carrier Go First, the continuation of Pratt & Whitney engine woes and supply chain challenges.

The year began on a positive note with the commissioning of Goa’s second airport in January. The Mopa airport in North Goa now handles around 100 flights daily and is poised to widen its connectivity further in 2024. Bengaluru airport’s terminal T2 also became operational in January.

The big development, of course, were mega aircraft orders by Air India and IndiGo. While Air India announced the purchase of 470 Airbus and Boeing planes in February, IndiGo ordered 500 A320/321 aircraft in June. With deliveries stretching into early years of the next decade, the two carriers have secured their growth for the next ten years.

Also in June, Boeing announced $100 million investment in India to train pilots that would be needed to fly new planes. The plane manufacturer estimates that over next two decades, South Asia would need over 37,000 pilots.

Go First’s grounding in May left customers and employees in lurch. With no resolution in sight the airline is staring at liquidation and its lessors continue to fight legal battle to repossess its planes. SpiceJet meanwhile secured a Rs 2,250 crore lifeline as it announced a share sale on preferential basis.

Despite the Go First setback, air traffic continued to grow. Between January-October domestic airlines flew over 125.4 million passengers which was higher than the entire year 2022 ( 123.2 million) and 6 per cent higher than the traffic in January-October 2019 (118.2 million).

While maintaining a stable outlook for Indian aviation, rating agency ICRA has expressed a word of caution.

“Despite a healthy recovery in air passenger traffic, the domestic aviation industry continues to face challenges from elevated aviation turbine fuel prices and depreciation of of the rupee vis-a-vis dollar compared to pre-Covid levels which have a major bearing on the airlines’ cost stricture. The airlines’ efforts to ensure fare hikes proportionate to their input cost increases will be the key to expanding their profitability margins,” said Suprio Bannerjee, vice president and sector head-corporate ratings, ICRA Ltd.

Good year for equities despite headwinds

Indian equities began the year on a dismal note, with the benchmark Nifty slipping below the psychological 17,000 levels in March. The gauge slid over 4 per cent in the first quarter of the calendar year as foreign portfolio investors net sold shares worth $3.2 billion, with geopolitical tensions and the US Fed’s hawkish stance spooking investors.

The market has been on an upward trajectory since then slipping briefly in August and October. Oil prices jumped in September, with the Brent crude topping $90 a barrel for the first time since November 2022 as expectations of a tighter supply grew. Prices have since cooled to below $75 a barrel.

Since hitting a low of 18,857 on October 26, the Nifty has climbed 13.7 per cent to record highs breaching the psychological 21,000 mark. The Sensex, on the other hand, has topped 71,000 levels, gaining 17 per cent in the year to date. The thumping win by the BJP in three state elections and the Fed’s dovish stance has buoyed markets in December.

The mid and small-cap indices have performed even better this year, raising concerns on valuations. The Nifty Midcap 100 and Nidty Smallcap have risen 45 per cent and 53 per cent in the year to date, respectively.

After pulling out more than $4 billion in January and February, FPIs shopped for equities worth over $20 billion between March and August. The investors turned net sellers again in September and October, before becoming net buyers again.

Domestic flows, however, remained resilient throughout the year. Net inflows into equity mutual funds averaged ₹13,317 crore for the year, with six months seeing inflows of over ₹15,000 crore. The amount garnered through systematic investment plans stayed well above ₹14,000 crore for the better part of the year, topping ₹17,000 crore in November, a new high.

“Until now, FPIs were the only ones giving direction to the market. Not any more. Domestic investors have stepped in in a big way during large bouts of FPI selling,” says UR Bhat, director, Alphaniti Fintech. “Earnings have largely met expectations, although overall valuations look a bit stretched.”

Realty, infrastructure and PSU banks have outperformed in CY23. Nifty Realty, Nifty Infra and Nifty PSU Bank have gained 78 per cent, 36 per cent and 33 per cent, respectively. PSU banks have much cleaner balance sheets and are on a capital raising spree. Infrastructure related sectors are doing well because of the government’s capex push and large budgetary allocations.

IT stocks came under pressure this year with the developed economies seeing subpar growth but the Nifty IT index has still managed to deliver returns of over 25 per cent.

(With reports from G Balachandar, Venkatesha Babu, Aroosa Ahmed, Aneesh Phadnis and Ashley Coutinho)