An expected slowdown in consumption and/or residential real estate in FY24 could unsettle credit growth in the country, Motilal Oswal Financial Services said in a report.
“We expect the slowdown in private consumption to be more severe than the consensus projections, implying that the deterioration in real estate could be less intense. However, since non-mortgage personal loans are the fastest-growing category within household debt, this scenario could also be equally forceful in disrupting the retail lending boom,” the report said.
In the past couple of years, notwithstanding higher inflation, the consumption and real estate sectors have performed very well at the expense of financial savings.
Net financial savings (NFS) dropped to a three-decade low of 6 per cent of GDP in FY23, while physical savings increased to a decade-high of 13 per cent of GDP.
However, in 2HFY23, the growth in private consumption and residential investments weakened substantially, boosting financial savings, the report said.
NFS could have bottomed out and may rise in the near future. Thus, we expect household spending trends in FY24 to match more with 2HFY23, rather than 1HFY23. In that case, due to weak income growth this year, growth will subside significantly in either private consumption. Or real estate investments or both, the report said.
According to the recent RBI survey of professional forecasters, although consumption growth is expected to weaken. In FY24, its share in GDP is projected to rise, implying a further fall in household savings. It means the consensus is more inclined toward a sharp deterioration in the real estate sector, which could surprise investors. This could be a trigger to disrupt the mortgage lending growth. Within the retail lending boom seen during the past 9- 10 quarters.
Private consumption accounts for about 60 per cent of India’s GDP. After falling to an all-time low of 56.2 per cent of GDP in FY12, the share of private consumption increased. To 59 per cent of GDP in the pre-Covid period (FY16-FY19) and further to 61.3 per cent of GDP. In FY21, before easing to 60.6 per cent of GDP in FY23, primarily due to very slow growth in 2HFY23.
Although consumption is the primary economic activity. For households, they also invest in residential properties (also called physical savings) and save in financial assets. Investments by households account for 35-40 per cent of total investments. In the country, totaling 11-12 per cent of GDP, the report said.
