Good morning and welcome to the latest edition of 'Open Interest'! The week has opened with markets in the green, but there are concerning trends afoot. Read ahead as we look at trends in urban spending, ad spends and foreign investments in the first leg of 2025.
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Urban consumption remained sluggish in January and February, with credit card data from the Reserve Bank of India indicating reduced spending on borrowed money. January's credit card spends grew by 11% year-on-year, down from December's 14%, despite Republic Day sales. This suggests lower e-commerce and consumer spending.
Key metrics show a 2.1% sequential decline in 30-day spends and a 0.8% rise in credit card outstanding, indicating longer repayment times. Lenders have tightened eligibility criteria, slowing new credit card additions.
The slowdown in credit card spending affects fast food chains, food delivery, quick delivery, and e-commerce channels, reflecting broader consumer trends. QSR sales growth in Q3 was driven by store additions, with average daily sales declining. Restaurants are focusing on dine-in sales to offset delivery channel pressures and raw material cost volatility.
Muted festive demand and a shorter festive season contributed to January's moderation. Rural volumes grew nearly twice as fast as urban volumes, with urban growth at 5% and rural at 9.9%.
Other indicators include a shift towards higher-end motorbikes and rising auto-financier delinquencies, potentially impacting auto sales growth. Early February trends show a sequential fall in retail auto sales, particularly two-wheelers and passenger cars, with lower two-wheeler financing.
Advertising spends in February, especially during the Champions Trophy, were muted compared to previous tournaments. Despite high digital viewership, adspend was limited to stock broking, PSU banks, and surrogate advertising. The shift from cable or DTH to OTT platforms continues, with Pay TV subscribers dropping from 18 crore to 12 crore, and active DTH subscribers now below 6 crore.
The decline in average daily stock market turnover and restrictions on futures and options trading have impacted discount brokers' revenues, operating profits, and adspends.
FPI Strategy
At its peak, India's weight in the MSCI Emerging Markets Index nearly matched China's, reaching over 22% as foreign investors poured in. However, since September, foreign flows have reversed, leading to a correction and a loss of over 350 points in weightage. Foreign investors have net sold $33 billion, absorbed largely by domestic institutional investors, but this hasn't prevented a sharp market correction. The sharp rise in the weights of China and Taiwan has led to significant outflows from in India of global passive funds. China now has 31% and Taiwan has 18.6% weights in the MSCI EM index.
The decline in India's weight has redirected flows to other emerging markets like China, Brazil, Taiwan, and Korea. Foreign investors have reduced their exposure to India's Financial and Oil & Gas sectors, with over 40% of outflows moving back to the US in search of higher returns.
The Trump administration's tariffs on Canada, Mexico, and an additional 10% on China have strengthened the dollar, which will likely pressure future flows. Foreign Portfolio Investors (FPIs) have seen a significant decline in asset value, more due to asset depreciation than profit booking.
Consumer spending and FPI flows will be key drivers for the markets moving forward.
Before we go, here are some of stories we had on our mind going into the new week:
1. Market expert CK Narayan, in his weekly letter, has one suggestions for investors: Wince And Bear It.
2. Traffic on deal street is sluggish, and the IPO frenzy is a key reason, writes Katya Naidu.
3. After the GDP print last week, Pallavi Nahata talks to economists on the road ahead.
4. SEBI had a leadership change! New chief Tuhin Kanta Pandey has four areas to focus on, writes Charu Singh.
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