Consumer demand set to bear the brunt of Covid-19 second wave

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The second wave of Covid-19 has begun to show its impact on the Indian economy as many ratings agencies have downgraded the country’s growth, based on indications from macroeconomic factors.

What is emerging as a clear case of worry now is how badly consumption will be hit due to this severe second wave.

Brokerage houses are pencilling in demand disruption and even postponing of other expenses by people due to the devastation caused by the deadly second wave of Covid-19.

Analysts have expressed concerns on how apart from a switch to precautionary savings, consumers are becoming more risk-averse.

Auto sales hit

Speaking to Money on the impact of the second wave on auto sales, Shashank Srivastava, Executive Director at Maruti Suzuki said: “Propensity to save increases as and when the perceived risk rises. 2,500 out of 3,100 Maruti showrooms are shut due to the lockdowns following the second wave. The states which are under lockdown cover over 93% of retail sales of the industry and therefore retail sales have been affected. Second half of April saw even demand, enquiry in rural areas also getting impacted which has continued in the first two weeks of May.”

The Reserve Bank of India too recently in its report had mentioned that the second wave has intensified in metros/cities, and relative to the first wave, it has spread rapidly across states, regions, and into rural pockets.

“The biggest toll of the second wave is in terms of a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation — while the aggregate supply is less impacted,” it said.

Low consumer confidence

What research analysts are also pointing at is how unlike last year, this time the increase in healthcare spending due to the severe impact of the second wave, people are saving more rather than spending money especially on consumer discretionary. Experts also are pointing at the difference saying that demand recovered quickly after the first wave as there was a pent-up demand. While it was the supply disruptions that hit consumption last time, this time it is the lower consumer confidence.

On the outlook on demand coming back and consumers’ confidence increasing, Srivastava said: “Improvement in demand depends on how soon we come out of the second wave and how successful is our vaccination drive. While there is talk of a third or even a fourth wave, people’s preference for personal vehicles will increase leading to higher demand for the auto sector going forward.”