Festive Season 2024 Falls Short Of 2023 Performance As Economic Pressures Mount

India's annual festive season, spanning six weeks around Diwali, witnessed a weaker performance in 2024 compared to the previous year, according to an analysis by Citi Research. This subdued demand, combined with a weak second-quarter earnings season and a slew of downgrades, signals mounting economic challenges for the country.

Citi's report showed mixed commentary from companies on festive trends. Urban demand was relatively muted, with rural demand showing better momentum. Categories such as jewellery, two-wheelers, and e-commerce performed well, while fashion and apparel faced subdued growth.

While festive demand remained positive, indicators show that growth was slower than in 2023. Vehicle registrations during the festive season for both two-wheelers and passenger vehicles were lagging well behind last year (12%/7% versus 20%/14%). Commercial vehicle registrations also declined, hinting at softer infrastructure activity, which only further reiterates that rural consumption is outpacing urban.

The manufacturing sector showed some improvement, as indicated by the Purchasing Managers’ Index, while the services sector remained flat. According to Citi,  this might reflect that a larger part of urban consumption slowdown might be linked to plateauing of services activity momentum.

Travel and hospitality employment fell 4% YoY during the festive season from 22% last year. Toll collection growth also fell to 10% from 22% last year.

Digital payments and e-commerce activity registered healthy growth, partially attributed to a shift from offline to online spending. An interesting find here is that currency demand for cash payments rose by Rs 845 billion during the festive seasons this year, the highest after Covid. The brokerage noted that this only further confirms that rural consumption is outperforming urban consumption momentum during this festive period.

The festive slowdown comes amidst a challenging earnings season. Jefferies reported that India's top companies are under acute pressure, with above-normal rains and weak government spending impacting fiscal 2025 outcomes. Jefferies cut earnings estimates for over 60% of the 98 companies it covers—a downgrade ratio not seen since early 2020.

This wave of downgrades has weighed heavily on domestic stock markets, pushing benchmark indices close to correction territory.

While October data shows a marginal pickup from the September quarter, policymakers could be concerned about the pace of growth in the second half of the fiscal year if broader monthly data (the festive days that spilled into November) only further confirms weak festive demand.

Citi suggested that while the Reserve Bank of India is unlikely to cut rates in December, the acknowledgment of weak festive demand might lead to a recalibration of its growth and inflation priorities. This could increase market expectations for a potential rate cut in February 2025.