They Who Bucked The Trend!
Some dark horses, like smartphones, smart TVs and wellness, were racing all through the slowdown blues. A close look
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British novelist and writer Nick Hornby once famously said, “Even, bad times have good things in them to make you feel alive.” And that is exactly what is happening now. While a once cantering Indian economy now seems to crawl at five per cent, some sectors like wellness and products like smartphones and smart TVs seem to be doing good business.
By the second quarter of the financial year 2019-20, apprehensions of another global meltdown began to grow and overwhelm the world. The softening intensity of trade is among the many reasons for the global slowdown. The immediate implication for India was shrinking exports. Exports also took a knock because of the delay in GST refunds for exporters. The gradual rise in the price of crude oil, most of which is still imported for Indian refineries, only widened India’s trade deficit.
Gerry Rice, Media Department Director of the International Monetary Fund (IMF) seemed concerned that growth rates in India were belying IMF projections. “We’ll have a fresh set of numbers coming up but the recent economic growth in India is much weaker than expected,” Rice said, “mainly due to corporate and environmental regulatory uncertainty and lingering weakness in some non-bank financial institutions and risks to the outlook are tilted to the downside, as we like to say”. India’s GDP has been on a downslide since the fag end of the first term of the Modi government (see chart).
After a series of baby steps, North Block suddenly took a giant leap on 20 September. It unveiled a big-bang fiscal stimulus, reducing corporate tax sharply from 30 per cent to 22 per cent, to give a fillip to investments in manufacturing. While the cut in tax rates will cause a $20 billion revenue loss to the national exchequer, it will also unleash the animal spirits of corporate India to drive investment, boost sentiment and spur consumption.
The day’s light, goes a Japanese proverb, peeps through a single hole. In India light shone through a myriad sectors. A Motilal Oswal Financial Services (MOFSL) in-house economic activity index report estimates India’s real GDP (adjusted for inflation) to have grown beyond expectations. The report says, “Our in-house Economic Activity Index (EAI) for India’s real GDP (called EAI-GDP) suggests six-month highest growth of 7.5 per cent year over year in Jul ’19” (please see bar graph).
The estimate is supported by a seven-month-high growth in investments and three-month-high growth in consumption. The report says, “We note that higher fiscal spending, better construction activity, faster growth in cargo traffic and expected growth in index for industrial production (IIP) for capital goods offset the record decline in auto sales”. The recent corrective measures taken by the Finance Minister may prove path-breaking for many more sectors.
The Dark horses
“Traditionally there were four industries or consumption categories that were unaffected by economic swings, typically down — street food, health, education and religion,” says Avik Chattopadhyay, Co-founder of brand strategy firm Expereal. Now, he says, content consumption seems to be the fifth such category. “Smartphones, smart TVs and smart devices are all mediums through which content is consumed ... news, sports, serials, music, videos etc. therefore they would continue to do well even in a downturn,” says Chattopadhyay, adding emphatically that “Demand is, and will be positive”.
Chattopadhyay points out that content consumption is trend-agnostic, implying that people consume news, views, music and videos, irrespective of the direction of the “economic swing”. As a matter of fact, during a downturn, they consume content about it and on how to ride it out. The cost of content is almost zero, he says, being driven by Jio and the hardware comes as a bundle with data and content, so the consumer does not feel the pinch.
The smartphone industry defied the trend, when the rest of the economy seemed to crawl. India is the world’s second largest mobile phone market after China and is close to being a leading mobile phone manufacturing hub too. The market for smartphones in India is enormous, with a lot of potential in tier-2 and tier-3 cities, not to speak of the unexplored rural market.
The IDC Quarterly mobile phone tracker says the smartphone market grew 9.9 per cent year-on-year (y-o-y) in the second quarter of 2019 and 14.8 per cent quarter-on-quarter (QoQ). According to the latest research from Counterpoint’s Market Monitor service, smartphone shipments to India grew to 37 million units during Q2 2019, setting a second-quarter shipment record. The report claims that the growth was driven by new launches, price cuts on older devices and channel expansion across brands. There is a spurt in demand specifically for affordable smartphones in the price range of Rs 7,000 to Rs 25,000, spurred by discounts on online platforms.
“Overall, automotive is a more mature segment which has existed over the decades. It has a much longer upgrade cycle, while the smartphone segment still promises a big growth opportunity due to lower penetration rates and quicker upgrade cycles. So, we can expect the smart device category to stay upbeat in 2019, despite an overall slowdown,” suggests Hanish Bhatia, Senior Analyst, Devices & Ecosystem. In February Xiaomi introduced the 48 megapixel camera beast, the Redmi Note 7 Pro and in the second quarter of this fiscal, it introduced another 48 megapixel phone, the Redmi Note 7S, with a 48MP camera. There was a continuous demand for the Redmi Note 7 series and Xiaomi sold five million units of the Note 7 series in just five months since its launch.
Says Raghu Reddy, Head - Categories and Online sales, Xiaomi India, “We notice a dip in the feature phone market and the ASP going up in recent times. This depicts a trend that consumers are upgrading to smartphones or higher-end devices. Smartphones have become an indispensable part of our lives now, first time users are shifting from their feature phones and 2G handsets to entry level smartphones, whereas people who already have one, are looking to upgrade to the latest available technology.” He goes on to say that more companies are surfacing in the smartphone market because of the “several more options for finance schemes available in the market today”.
Honor claims to have had a strategic involvement with its consumers in the Indian market. “Considering the need for the latest and best in quality products, we always have something new for our customers,” says Honor India President Charles Peng. “We have merged the best global technologies from designing in Paris, acquiring camera and optics input from Japan, manufacturing processes from Germany … Each product has global quality standards, leading to consumers’ reliability in our products,” he goes on to say. Peng attributes Honor’s ability to push its sales ahead in a market in which consumers had turned shy to its “consumer-centric approach, stringent quality testing and lowest failure return rate than other smartphone brands”.
India is also witnessing a boom in sales of high-definition TVs, even in tier-2 and tier-3 markets. Features like higher picture quality, more immersive viewing experience and ultra-high resolution are becoming increasingly popular. In less than 15 months from its first sale, Xiaomi sold over two million smart televisions in India and over a million units in 14 months. Today, Mi TV is the foremost Smart TV brand in India for four quarters in a row, with a market share of 39 per cent. The IDC’s Worldwide Quarterly Smart Home Device Tracker, Q1 2019 forecasts Xiaomi’s shipments to India to be 6.8 million units in 2019 from 4.8 million units in 2018.
Navkendar Singh, Research Director – Devices and Ecosystem, India & South Asia, IDC says, “The TV industry in India is going through a transformation right now wherein users are increasingly replacing their non-smart TVs with smart TVs. This has happened in parallel to the availability of inexpensive and huge amounts of data which gave an impetus to the growth of content streaming services in India. All global OTT brands have started their business in India and are investing in localised content.”
Manish Sharma, President & CEO, Panasonic India and South Asia, says, “Within the TV segment, there is a significant shift in the consumption of Smart TVs owing to factors such as the rising aspiration for smart and efficient products, and broadband disruption. This segment has seen a sharp volume growth from eight per cent to 30 per cent in the last four years and continues to have an upward trend. Looking at this positive momentum, Panasonic has expanded its smart TVs range and introduced 14 new models in its 4K series.”
Devita Saraf, Founder and CEO of VU Technologies says, “Smart TVs have become incredibly affordable vis-à-vis a lot of high-end products. The entry level product is now available at Rs 15,000-20,000 compared to Rs 35,000 - 40,000 earlier.” Saraf says, “I think consumers are moving to smart TVs simply because they can get the maximum bang for their buck.”
Among industry segments that cocked a snook at the slowdown blues are financial services. Money View co-founder Puneet Agarwal is among the largest players in the trade. “India has seen a huge transformation in the last 15-20 years from being a savings-based economy to a consumption-based economy. The current generation is becoming more aspirational in nature and does not hesitate to consume before paying for the same. As this consumption economy is very often based on credit, there is a huge demand for credit,” says Agarwal.
Money View offers quick personal loans in paperless transactions. “Moreover, credit-based economy is the norm in many developed countries,” says Agarwal. “As credit enables consumption, it is a big enabler for their GDP growth. Currently, we feel India is moving in a similar direction.” He cautions though that lending companies need to “pay attention to risk management during a slowdown”. Agarwal says Money View had reduced its loan exposure to the automotive sector, for instance.
The business of wellness is perhaps for all times. Mansoor Ali, CMO, Hamdard India, however, does not believe that times were bad for the economy. He describes the current slowdown as short term and partially cyclical in nature. “The current crunch is part of a larger cycle, where economic indicators and environmental factors create perceptions of slowdown,” says Ali, adding, “Our product category consists of essential consumption products which are low on pay-out and are health based for consumers. Many of them are on the essentials list of households. This price and positioning strategy helps us stay above the line in times of short term slowdowns.”
Consumers, he says, are rapidly moving towards wellness products that are organic and free of chemicals. “The change in their ideology with focus on mindfulness and modified consumption behaviour or pattern has seeded the growth story of wellness and health products and services,” says Ali. He feels the impetus given to Unani and other traditional practices by the AYUSH ministry was partly responsible for the galloping growth of the industry.
Many in industry concur with the view that the slowdown in the economy is only temporary, and an outcome of certain very sector-specific events, like poor business decisions in the automotive industry, banking, real estate, construction, non-banking financial companies (NBFCs) and housing finance companies (HFCs). With the massive stimulus package granted by Union Finance Minister Nirmala Sitharaman, along with the pruning of corporate tax rates, these sector-specific deterrents are expected to melt away. Market sentiments are likely to swing back and consumers are expected to go on a buying spree again.
More race horses will hopefully emerge on the corporate firmament once the financial stimuli injected into the economy begins to work. But those few dark horses that BW Businessworld found galloping through the gloom, will probably begin to fly over the fence then.