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This quarter is again showing the same trend that was visible in the last quarter. That is a K-shaped recovery in the economy. Earnings results so far and statements by the companies depict that the business catering to high-end consumers has good growth but the lower and middle-income group is not spending heavily. This is visible across the sectors.

HUL results depicted that decline in rural volumes both for the quarter as well as the whole year (7% for whole year and 3% during quarter). In the mobile segment also sales of high-end phones were better than the lower end. In the auto sector also 2-wheeler sales are yet to show improvement.

This trend is also visible in retail sales figures. Retail sales have increased 34% from per-pandemic levels but they were mainly driven by QSR, electronics items and sporting goods. For coming quarters, retailers are cautious about demand, more particularly, demand in tier-2 and tier-3 cities.  Adding to the woes is the lower income group also need to spend money.

Even commentaries by international companies like Unilever and Coca-Cola point to concerns in rural areas and also unseasonal rains.

Earnings Results

Coming to results, analysts expect Havells to report YOY earnings decline. It is stated that demand weakness in lighting and ECDs can impact margins. Similarly, even for Marico, sales growth is estimated between above 1.5% to around 3.5%. While Titan is expected to have good results. This is again indicating a K-shaped trend in the economy.

FPI Trend

We have witnessed that FPIs have invested majorly in banks in recent times. Now this might be also to diversify themselves from the K-shape trend in demand. As banks service all the consumer sectors. Lower end, higher end by credit cards, personal loans and corporate loans. So if there would be lower demand in one sector, the demand in other sectors could be higher. This way demand risk is diversified.