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Discretionary spending likely to revive only in second half of FY24

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Slowdown in discretionary purchases by Indian consumers is likely to continue for a few more months before a strong revival in demand in the second half of the fiscal, chief executives of several leading consumer-focused companies said.

By then, they expect inflation to taper down and economic growth rate to normalise, triggering a consumption boom like last year till Diwali.

Consumers started reducing non-essential spending such as those on apparel, lifestyle products, electronics, and dining out since last year's Diwali, starting with mass-segment brands and in smaller towns.

Companies said there is a slowdown in demand in cities since February-March.

There are demand pressures across discretionary products due to inflation, overall slowdown in the economy, and many other macro factors, said Ashish Dikshit, managing director of apparel manufacturer and lifestyle retailer Aditya Birla Fashion and Retail (ABFRL).

"Our sense is perhaps it's closer to the festive period when we will start seeing the kind of buoyancy that we had seen in the pre-festive period last year," he told analysts at the company's earnings call earlier this week.

Lalit Agarwal, managing director of retail chain V-Mart Retail, said the "honeymoon period" led by revenge shopping, outing, and tourism are now over.

However, the lower strata of the economy - where consumers were "demotivated" and "were decreasing their consumption" - is coming back a little bit, and it will take some more months for demand to bounce back, he told analysts in a recent earnings call.

Still, companies like ABFRL and Shoppers Stop reported their highest-yet January-March quarter revenues, led by premium products and store expansion.

But Dikshit said ABFRL's sales growth last quarter was "slightly lower" than internal estimates, which "has resulted into higher inventory and to that extent, some large part of debt has come through that".

Shoppers Stop management told analysts that the pent-up demand of last year March and April - after the Omicron wave of Covid-19 - is absent this year.

Ravi Jaipuria, non-executive chairman of Devyani International that operates chains of eateries like KFC, Pizza Hut and Costa Coffee, said in its earnings call last week that initial signs of stabilising inflation are visible, which give hope of a rebound in consumer spending in the second half of this fiscal.

Devyani's chief financial officer Manish Dawar said the restaurant sector typically follows the demand trend in consumer staples, which has started seeing some recovery. This has given them confidence that the dine-out industry will follow suit. He said input prices have come down and expects dairy prices such as cheese to also stabilise in six months. Sameer Khetarpal, chief executive officer of Jubilant FoodWorks that operates eatery chains like Domino's Pizza and Dunkin' Donuts, said the company is continuing to expand stores since demand slowdown is transitory. He said the situation "looks more stable" than what it was a few months back.

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