Morgan Stanley

Latest AlphaWise Findings: Indian households to cut savings to manage rising inflation

May 23, 2011

Mumbai —

MUMBAI, May 23, 2011 – Morgan Stanley (NYSE: MS) today announced the findings of its latest research survey concluding that Indian households are likely to cut savings to manage rising inflation. The survey is based on 2008 representatives of the low, medium and medium – high income groups.

Commenting on the implications of the findings, Ridham Desai, Head of India Research at Morgan Stanley said, “The findings indicate that there will be a slow down in the consumption for food items and other staples over the next twelve months.”

In the report, Morgan Stanley notes that households expect inflation for their consumption basket to rise further. The research also suggests that they are willing to cut their savings to retain their expenditure growth at previous year’s levels. The research indicates that households are likely to cut back on consumption on grocery items, while they are unlikely to reduce consumption of lifestyle category and household amenities.

The report also notes that companies with pricing power will benefit while staple-companies are likely to face down-trading. It highlights that rural India is steadily gaining importance as a key focus area for consumer companies. Also, the consumption habits for urban and rural India appear alike.

Other key findings of the report:

  • Households are likely to respond with a down-trading in food items and other staples over the next 12 months.
  • Households are unlikely to reduce spending on medical, education, lifestyle, and transportation (MELT).
  • Mom & pop stores remain a key source for shopping. The modern retail revolution has a long way to go.

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