Fall in net financial savings of Indian households could be due to higher inflation

New Delhi : The net financial savings of Indian households have fallen to a multi-decade low of just 5.1%, while their net financial liabilities have risen to 5.8% of GDP in FY 2023, up from 3.8% in FY 2022, Kotak Alternate Asset Managers said in a research report.

“This could be attributed to higher inflation eroding savings, as well as the financially weaker section of society borrowing more to make ends meet, in our view," the report said. This could lead to sluggish overall consumption demand in the medium term unless the government steps up spending to revive consumption before the elections.

"On the other hand, a surge in government spending ahead of the elections, higher tax collections, a solid revival in the housing market, a spike in premium consumption, and improving credit penetration could lead to slightly better-than-consensus GDP growth in FY 2024, in our view. Furthermore, the festive season sales, wedding-related spending, along with the cricket world cup may help to revive certain pockets of consumption," the report said.

Relative risk-reward is favourable in large-caps versus mid and small-caps in the near term, Kotak Alternate Asset Managers said. “We continue to maintain our neutral stance on Indian equities from a portfolio context and believe any further sell-off in Indian equities could offer a good buying opportunity”, the note said.

Export-oriented and commodity-linked sectors such as chemicals, IT, textiles, and metals could underperform. In contrast, domestic-focused sectors such as cement, banks (including PSUs), real estate, and defense could attract buying interest on corrections. We maintain our positive view on the pharma sector, it said.

From macros perspective, festive season and the cricket world cup could have a positive impact on economic activities and tax collections. “We expect the ongoing geopolitical developments to have a limited impact on India’s macroeconomic fundamentals unless they deteriorate materially in the next few weeks. We expect yields and the INR to remain well anchored," it added.