Juicing Up Consumer Durable Sales in India: What the RBI's Repo Rate Cuts Mean
Boost credit sales to surpass 50% milestone this year, powered by reduced interest rates
The Reserve Bank of India (RBI) has pulled out all the stops with a 50-basis-point repo rate cut, swinging open the gates for a potential 50% surge in consumer durable sales this financial year! Here's what you need to know about the RBI's game-changing move:
Fueling the Fire for Consumer Durable Sales
Electronic firms, NBFCs, and retailers are gearing up to cash in on this incentive offered by the central bank as the rate cut has led to expectations of a substantial decrease (about 25-30 basis points) in consumer durable loans in the near future.
The Perfect Timing
The interest rate cuts on durable loans are poised to land just in time for the festive season, starting with Independence Day in August. This will be followed by a string of regional festivals such as Onam and Ganesh Chaturthi. The second half of the year is also brimming with major events like Navratri, Durga Puja, Dussehra, and Diwali - crucial periods for durable goods companies, accounting for over 50% of their annual sales.
Premium Purchases on the Rise
Industry insiders predict that the premium end of the market, where finance schemes have been instrumental in driving affordability for high-end items, will experience an added boost. Avneet Singh Marwah, CEO of Super Plastronics, a leading consumer durables manufacturing firm, noted, "Finance schemes have been key in driving affordability for premium products."
The Power of Piecemeal Payments
Experts claim that piecemeal payments have long driven big-ticket purchases, such as homes and cars, in India. Now, the trend is extending to smaller purchases as well, with consumers eager to upgrade their products or satisfy their craving for new gadgets.
In the past six years, consumer durable companies, electronics retailers, and NBFCs have been aggressively promoting credit schemes like no-cost or low-cost EMIs, longer-tenure loans, zero-down payment options, and cashbacks. As a result, the share of sales that come from these schemes has seen a steady increase, more than tripling from 15% in 2019.
Easing Monetary Policy Opens the Floodgates
With lower interest rates, stakeholders are expected to pass on the benefits to consumers, which in turn will result in a surge in sales through credit schemes. In the industry's current state, sales funded by easy financing schemes are nearly at the halfway mark; they could easily exceed 50% this year as brands, retailers, and NBFCs go all-in.
Future Outlook
As consumers are likely to have more disposable income thanks to the fiscal stimulus measures initiated within this year's April kickoff and the RBI's monetary stimulus, the second half of 2023 is expected to see a significant consumption boost.
Haier Appliances President NS Satish sums it up, "The dual measures of fiscal stimulus and a rate cut will be positive from a consumption standpoint. The durables industry stands to gain from an uptick in discretionary spending."
So keep your eyes peeled for some serious deals on consumer durables, as the festive season is about to get a whole lot more exciting!
- The central bank's decision to lower the interest rate on consumer durable loans could encourage banking institutions, NB Finance Companies (NBFCs), and retailers to offer substantial discounts on consumer durable products, targeting the premium end of the market.
- With the lower interest rate, the finance sector is predicted to see an increase in investing in the banking and technology sectors, as the reduced cost could incentivize both businesses and consumers to purchase consumer durable goods.
- Decreased interest rates on consumer durable loans could also attract investors who are interested in the Defi (decentralized finance) space, as the reduced cost of borrowing could make it more affordable for consumers to purchase and use products in the Defi ecosystem.
- As a result of the RBI's monetary policy changes, the economy is expected to see a surge in consumer spending on durable goods, as consumers will have more disposable income due to the interest rate cuts and fiscal stimulus measures.
- With the surge in consumer spending on durable goods, the finance sector is likely to experience growth in the second half of 2023, as businesses in the consumer durable, banking, and technology sectors are expected to reap the benefits from this increase in consumer spending.
