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 by Nomura.

The rationalisation of GST in the last week of September was largely spoken of as a “Deepavali gift” 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 from Nomura, citing some initial data, said that the impact of GST rationalisaton on 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,” Nomura said in its research report.

Aurodeep Nandi and Sonal Varma, the research analysts, who wrote the report further said that while the price cuts after the revised GST rates were visible in automobiles, 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 the GST cuts. Also, it is worth noting that not all goods and services have had lower GST rates after the revision,” the analysts noted.

Citing data from a Local Circles survey, the analysts at Nomura said just 10% of the respondents felt that the benefits of the GST cut 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 of GST cuts.