Higher festival sales could be outcome of pent-up demand: Nomura

Early signals of higher festival sales could be anecdotal and an outcome of pent-up demand, according to a research note byNomura.

The rationalisation ofGSTin the last week of September was largely spoken of as a “Deepavaligift” to Indian consumers and multiple equity researchers said that this would boost festive sales and also trigger revival corporate earnings in India.

In this context, analysts fromNomura, citing some initial data, said that the impact ofGSTrationalisatonon the Indian consumption sector may be “less straightforward.”

“Companies might have trimmed prior discounts or subtly marked up prices in the run-up to the implementation. Also, for some goods and services, the ultimate tax incidence may have remained the same or increased,”Nomurasaid in its research report.

AurodeepNandi andSonalVarma, the research analysts, who wrote the report further said that while the price cuts after the revisedGSTrates were visible inautomobiles, it was stickier in consumer non-durables.

“Despite government pressure, smaller firms may have turned out to be more reluctant to pass on the cuts to consumers. In some cases, companies may have found creative ways around this by either trimming prior discounts or subtly marking up prices in the run-up to theGSTcuts. Also, it is worth noting that not all goods and services have had lowerGSTrates after the revision,” the analysts noted.

Citing data from a Local Circles survey, the analysts atNomurasaid just 10% of the respondents felt that the benefits of theGSTcut were passed on to consumers in the packaged food industry. Sales and volumes data for Q2 of the current fiscal of Indian companies will give a more concrete idea of the impact ofGSTcuts.