Seventh Pay Panel: Pay hike to be good news for company earnings
The recos of the Seventh Pay Commission is expected to generate a Rs 1 lakh crore approx for consumption demand in India.
By Ashutosh R Shyam, ET Bureau | Updated:
The recommendations of the Seventh Pay Commission is expected to generate a $15-billion stimulus (Rs 1 lakh crore approx) for consumption demand in India. Historically, there is a direct relationship between the quantum of salary hike and pick-up in volume growth of consumer discretionary companies. ETIG analyses the expected impact
Auto Sector
Volumes of motor bikes and cars grew at 18 per cent annually in 2008-2011 after the Sixth Pay Commission.
Current salary increase is expected to lift the four-wheeler volume growth by 5-7 per cent annually for the next two years and two-wheeler volume by 1.5-2.5 per cent annually.
Analysts believe that pay hike could result in additional sales of nearly three lakh passenger cars in FY17.
Growth for two-wheeler cos would be less than four-wheelers' as their penetration level is high.
Higher disposable income may result in customers upgrading their current motorcycles; this may benefi t Bajaj Auto and Eicher Motors.
Maruti Suzuki would likely to be a key benefi ciary as its products in the entry segment would appeal to govt employees.
For Maruti, the share of sales to government employees increased from 2 per cent before 2008 to 15 per cent at present.
Credit Suisse had increased domestic volume growth estimate of Maruti for FY17 from 17 per cent to 23 per cent on account of the Seventh Pay Commission.
FMCG/Retail
Analysts believe volume growth is unlikely to pick up, but higher disposable income will lead to consumption of premium products.
Shift to premium products will help cos such as Asian Paints and Titan.
Asian Paints and Titan registered sales growth of 22.5 per cent and 30.3 per cent for the quarter ended Dec 2009 when arrears from the Sixth Pay Commission were credited in employees’ account.
Packaged and processed food producers should also be at an advantage.
HUL and Britannia should be able to gain through their efforts to include more premium products in portfolio.
Real Estate
Household savings in physical assets have risen following pay revisions.
During Sixth Pay Commission, physical saving increased to more than 13 per cent of GDP from 11 per cent before.
Nearly 6 per cent of total buyers of Sobha Developers were govt employees.
Auto Sector
Volumes of motor bikes and cars grew at 18 per cent annually in 2008-2011 after the Sixth Pay Commission.
Current salary increase is expected to lift the four-wheeler volume growth by 5-7 per cent annually for the next two years and two-wheeler volume by 1.5-2.5 per cent annually.
Analysts believe that pay hike could result in additional sales of nearly three lakh passenger cars in FY17.
Growth for two-wheeler cos would be less than four-wheelers' as their penetration level is high.
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Higher disposable income may result in customers upgrading their current motorcycles; this may benefi t Bajaj Auto and Eicher Motors.
Maruti Suzuki would likely to be a key benefi ciary as its products in the entry segment would appeal to govt employees.
For Maruti, the share of sales to government employees increased from 2 per cent before 2008 to 15 per cent at present.
Credit Suisse had increased domestic volume growth estimate of Maruti for FY17 from 17 per cent to 23 per cent on account of the Seventh Pay Commission.
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FMCG/Retail
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Analysts believe volume growth is unlikely to pick up, but higher disposable income will lead to consumption of premium products.
Shift to premium products will help cos such as Asian Paints and Titan.
Asian Paints and Titan registered sales growth of 22.5 per cent and 30.3 per cent for the quarter ended Dec 2009 when arrears from the Sixth Pay Commission were credited in employees’ account.
Packaged and processed food producers should also be at an advantage.
HUL and Britannia should be able to gain through their efforts to include more premium products in portfolio.
Real Estate
Household savings in physical assets have risen following pay revisions.
During Sixth Pay Commission, physical saving increased to more than 13 per cent of GDP from 11 per cent before.
Nearly 6 per cent of total buyers of Sobha Developers were govt employees.
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