Consumption-driven growth causing 'serious slowdown' warns SBI MF

Mumbai: Consumers are spending much more than their income and also resorting to loans to fund their lifestyle since the past few years, resulting in a "serious slowdown" in consumption, a leading asset management company said Tuesday.

Given the concerns like weak auto sales which slumped to a 19-year-low in July, SBI Mutual Fund refused to give an outlook on the markets for the near-term, pointing to the "volatilities" on both the domestic and global fronts.

"Consumers were dis-saving and consuming more than their income, helped by increasing access to the leverage. Such growth has its own limits," the fund house's chief investment officer Navneet Muhnot told reporters.

He said personal consumption spend has outgrown household income, leading to the household savings plummeting to a low 21 per cent in FY18 from 34 per cent in FY10, while the share of consumption has gone up 290 bps to 59.1 per cent of GDP in FY18 during this period.

At the same time, annual household liabilities have been building up at 3-4 per cent of GDP annually or 4-5 per cent of the disposable income, he said.

"Given the limited social security net, there is a natural floor to the levels to which savings can fall, which in turn will put a natural break to the consumption growth," he said.

When asked about the auto sector, he said no one expected a "collapse" in the sector like this and blamed the same to a shift to the shared-mobility economy and the continuous talks on electric mobility. Next few weeks will be critical which will shape the future of the sector, he added.

The government needs to put road projects on a fast track by focusing on two-three big projects, fast track the PM's Kisan Yojana to boost rural consumption and work on taxation through simplification and also lowering rates, he said.

Early resolution to the NBFC crisis, which fuelled a part of the consumption in the last few years, is also "critical", Muhnot said.

While declining comment on the outlook which the house keeps on equities till December, he sought to cite a silver lining. Usually, the markets price in a slowdown before it hits the real sector, he said, and pointed out to the recent slump in market indices as an indication of the risks being priced in, he said.

SBI Mutual Fund also said it has been able to change the perceptions on how it votes and companies are discussing proposals with it before hand because of the fear of a negative voting when it is taken to the shareholders.

He cited the case of a company whose stock tanked 20 per cent after an announcement of diversifying into the tyre business only to retract it a day later, to claim that the markets are punishing the wrongdoers on environment, social and governance front.