Negative wealth effect: Retailers warn stock market crash could hurt consumer sentiment

US President Donald Trump's sweeping import taxes on all its trading partners, including India, have sparked concerns of a global recession, prompting investors to dump shares and cut their losses. These sharp, sudden cuts could be unnerving for a significant number of young investors, who began investing in stocks post-pandemic and who have since seen the markets move just one way - up.

There has been a substantial increase in the number of investors in India between 2019 and 2024. The number of demat accounts (which are essential for holding shares electronically) more than quadrupled to 185.3 million in 2024, from 39.3 million in 2019.

Retailers flag caution in small towns

Companies said Monday's wipeout, when the Sensex and Nifty50 each slumped 3%, causing a loss of ₹14 trillion in investor wealth, could adversely impact consumer sentiment. “About 10-15% of our customers in smaller cities where we are present could be potentially exposed to the stock market. So, we do see some impact on the mindset of consumers. This may have an impact on discretionary categories; not essentials," said Lalit Agarwal, founder and managing director of V-Mart Retail.

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V-Mart Retail has a total of 497 stores. The company operates in the value clothing and general merchandise markets.

Typically, when falling stock markets hurt consumer confidence, value retail benefits from buyers moving to low-priced goods, he said. "People may shift to a savings mindset but we must also watch out for interest rates going forward," he added.

Discretionary demand stays weak 

In 2024, demand for discretionary retail goods like apparel, jewellery, electronics, and footwear grew modestly by 3-4%. Data from the Retailers Association of India indicated that garments and footwear were particularly affected.

“All of last year consumers were not spending on discretionary items and growth was modest. I think customer sentiment is more or less the same. During volatile times consumers take some tough calls, whether to save less and preserve more—we will have to see how it impacts categories such as the upcoming travel season or purchase of summer appliances. This stock market volatility is very scary and no one knows when it will improve," said Kumar Rajagopalan, CEO, Retailers Association of India (RAI). The industry body represents both large and small retailers across categories.

However, he added that India’s ability to capitalize on the shift in exports globally could help the manufacturing sector in the mid-to-long term.

“The good part is that consumers are not paying for high-value goods upfront from their pocket, since a large volume of business happens via equated monthly installments," said Nilesh Gupta, managing director at electronics chain Vijay Sales.

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However, Gupta cautioned that if the market doesn't recover, consumers may postpone upgrading to new home appliances. “If the market goes into a slight depression, people may increase the lifecycle of their existing products and may upgrade a year later; but there are no signs yet," he added.

FMCG steady, outlook uncertain

The expected impact is more on the mindset to be cautious, than perhaps the actual behaviour, said K. Ramakrishnan, managing director-South Asia, Worldpanel Division, Kantar. Kantar tracks household consumption of staples.

“For almost a year now, the RBI's confidence indices are suggesting that there is more pessimism among shoppers than optimism. In this backdrop, the financial markets' performance is likely going to add to this pessimism. And given that urban shoppers are the one who are impacted the most, we expect the shoppers to be cautious as we get into the summer months," Ramakrishnan added.

However, market crashes are not likely to impact categories like fast-moving consumer goods. “Stock market meltdowns themselves do not impact FMCG consumption in a big way unless they are coupled with economic slowdowns, and India's macroeconomic indicators are resilient for the time being. However, if we go by history and data, as noted previously, the financial market losses need to be coupled with the economic slowdowns for FMCG to be impacted in a big way," he said.

High inflation has already crimped urban demand across various categories. For instance, in the March quarter, demand trends across various consumer goods categories such as staples, liquor, apparel, and jewellery remained “stable", per a report released by brokerage Motilal Oswal on Monday.

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“We haven’t seen any short-term demand slowdown linked to the recent stock market volatility. While market fluctuations have been ongoing for a few weeks now, our demand has remained steady, with encouraging growth in certain regions. However, if the market downturn persists over an extended period, it could start to impact discretionary spending, which we will monitor closely," said Aayush Madhusudhan Agrawal, founder and director, Lenexis Foodworks.

The Mumbai-based company operates more than 200 restaurants across India.