Diwali demand - Dark clouds, and a few bright spots

It's just a week to Diwali, India's biggest festival that is also peak shopping time for the hundreds of millions of its consumers. This year, though, trends on spending are mixed, with sales of items such as cars soaring and other indicators suggesting overall consumer demand is subdued.

Will the festival of lights be a dark one for retailers? That is our focus this week.

And frenzied buying into silver exchange-traded funds (ETFs) in India prompts a few funds to halt bulk subscriptions as they can't get their hands on enough metal. Scroll down for more on that.

The India File will take a break for Diwali next week and return on October 28. Happy Diwali!

Diwali, the Hindu festival, typically marks the peak of consumer spending in India, with shoppers opening their wallets to everything from cars to clothes to home appliances.

This year, economic activity during the festive season —stretching from September through Diwali next week — is under closer scrutiny than ever, as India's economy navigates a mix of opposing forces.

On the one hand, bruising U.S. trade tariffs and weakening global demand, particularly in sectors such as IT services, are expected to keep urban consumption subdued. On the other, though, a recent income-tax cut and reductions in levies on everyday goods are likely to provide a boost to spending.

Indian dealers' auto sales grew 5.2% year-on-year in September compared to a 9% decline in the same month in the previous year. The data is not strictly comparable as festival dates differed, with Diwali falling later in October last year.

During the nine-day Navratri period, another important festival in the run-up to Diwali, auto sales soared to a record, the auto dealers' body said, as tax cuts coincided with the start of the festival.

Most automakers said September marked a turn in demand. Mercedes-Benz sold one car every six minutes this Navratri, its India chief told newspaper Financial Express.

Amazon, which launched discounts coinciding with the tax cuts kicking in, reported its strongest start to the festival sales with 380 million visits in the first two days. Of this, 70% came from beyond the top metros, the ecommerce company said in a statement, without sharing the value of the transactions.

Redseer Consulting expects 2025 to be the best year for ecommerce platforms in five years.

But other segments may see tepid demand.

Purchases of gold are expected to remain subdued because of the soaring prices of bullion, even though dealers are expecting a pick-up in sales from previous months.

"The festive season, historically a strong growth driver, may exert a lower-than-expected boost this time," said analysts at Ambit Institutional Equities in a note dated October 7.

They expect weak growth in corporate wages and a stagnant labour market to weigh on consumption. Recent tax cuts will trigger substitution rather than overall demand, Ambit said.

The boost in spending may come more from smaller towns and rural areas.

According to Citibank analysts, the rural economy remains strong, driven by an eight-year high for rural wage growth, strong agricultural activity and a 10% rise in non-agricultural jobs.

"The critical question is that could this be accompanied by urban demand recovery that helps improve market/business sentiments," Citi said in its note.    

Both Citi and Ambit analysts cited subdued growth of near 8% in wage costs for non-financial listed companies as a possible indicator of weak urban demand during the festival season.

That wage growth remains below the long-term average of 11% and could weigh on spending sentiment. In particular, wages and jobs across the IT sector remain weak.

"The exposure of the IT sector to macro and policy uncertainty in the U.S. remains the key risk to urban demand revival in the near term," Citi said.

Data for September shows that air travel and hotel occupancy rates were down, while the month's Purchasing Managers' Index for manufacturing and services also slipped. The increase in personal loans, often used to fund festive purchases, also remained lower than the previous year.

While pre-festive season data is flat, there is hope of a revival led by lower taxes and interest-rate cuts, Citi economists said.

But there is uncertainty over what proportion of the stimulus would be spent and what would be saved, they said.

Are you seeing signs of strong demand around you this Diwali?  Write to me at ira.dugal@thomsonreuters.com.

Soaring prices of gold and silver have led to a surge in inflows into ETFs backed by the metals, with subscriptions hitting a record in September.

The buying frenzy into silver ETFs in particular has led to some Indian funds suspending large one-time inflows due to a shortage of physical metal supplies in the Indian market. The suspension is a temporary measure till the supply-demand mismatch for the metal eases, the manager of one such fund told Reuters.

Read here to understand what's behind the silver shortage.

An annual gathering of fintech firms in India, headlined by the Prime Ministers of India and UK, sidestepped any conversation around cryptocurrencies and stablecoins even as their adoption grows globally.

"Please avoid political, crypto, religious, or personal remarks on stage or at the venue," read a document with guidelines for speakers issued by the national payments authority which organised the event.

Read here for more on the mood at the Global Fintech Fest.

Cryptocurrencies had a volatile week globally as prices plunged on Friday. India has cited such volatility as one reason it prefers to relegate crypto to the sidelines.

Instead, India continues to push its homegrown real-time payments technology – Unified Payment Interface – where it has now enabled biometric authentication.

At least 19 children died in the central state of Madhya Pradesh after taking Coldrif cough syrup, which was banned after a test this month showed it contained nearly 500 times the permissible limit of diethylene glycol, a toxic chemical.

The incident has sparked a chain of events, including a warning from the World Health Organisation on gaps in India's testing processes. Exports of cough syrups have required another layer of tests at government-mandated laboratories since 2023 following the deaths of over 140 children in Gambia, Uzbekistan and Cameroon linked to Indian syrups, detailed in this 2023 Reuters Special report.

This newsletter was edited by Muralikumar Anantharaman, Editor, Global News Desk, in Singapore.

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