The Stock Markets are Still Under Pressure
Friday last week saw the markets slide again after a 3-day winning streak
On Episode 485 of The Core Report, financial journalist Govindraj Ethiraj talks to Prabhu Dhamodharan, Convenor at the Indian Texpreneurs Federation as well as Karan Taruani, Consumer Analyst and Senior Vice President at Elara Securities.
(00:00) The Take
(04:50) The stock markets are still under pressure, on standby for Budget cues
(06:12) India’s forex reserves are at 10 month low, down $79 billion
(07:53) India is now experiencing a structural slowdown, says UBS
(10:16) Will the US step up or down sanctions on Russian oil? And what that could mean for India?
(13:25) On Trump’s inauguration day, how could potential import tariffs hurt India’s apparel industry
(26:00) Reliance retail has reported strong Q3 results, does that mean consumer products are doing well?
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 20th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
Today is the day that will be most looked forward to and maybe backward as well, the inauguration of Trump 2.0.
Because not in a long time has global trade been on the tenterhooks for reasons within control.
The Take
Electric vehicle cars are just 2.5% of annual sales while electric two wheelers are 17% of annual sales.
Tata Motors controls roughly 62% of the market with a declining share, having held at 73% the previous year.
In electric two wheelers, Bajaj Auto as of December held a nearly 25% market share followed by TVS Motor at around 23%.
Ola Electric, though leading on an annual basis, is losing market share rapidly.
This is despite dropping prices drastically while the others have held on. Ola Electric has moved to number three from 1 and looks like it will fall further as buyers switch to brands they trust more or feel they can trust more.
Buying a vehicle is all about trust, of the brand and the proposition.
In the case of electricity, however, there is a product problem.
Worldover, potential and existing owners live in fear that the battery will drain while in a traffic jam and obviously nowhere near a charging station which you cannot push your car to in any case.
In the good old days you could collect a few friendly souls and push your petrol car to one if there was a pump close by.
The importance of trust becomes paramount because consumers have to take on bets on electric vehicles in general and the brand in particular.
This comes in the context of a heavy push by the Government itself in electric vehicles with the Prime Minister Narendra Modi making a strong case for green mobility and alternate fuels including electric at the Bharat Mobility Expo 2025 that opened Friday last week in New Delhi.
The Government of course is inviting investment into the mobility space because among other things, the automobile industry contributes 7% to overall GDP and almost 46% or nearly half of India’s manufacturing sector and thus a crucial high skill job creator.
India has never been an easy market to predict because Indian consumers place a higher premium on value rather than just cost.
Price too high and your vehicle might not move out of the dealership and discount too much and you might face the same problem.
So it is not a price issue only.
The good news is that Indians are facing the same range anxiety issues as automobile owners world over, except maybe in Scandinavia, when it comes to purchasing an electric vehicle.
Interestingly, electric two wheelers, many of them used for hyper local delivery and the like have already found a market.
As have electric three wheelers, again used for both transport and people.
Interestingly, in these categories brand in itself is not playing as much of a role in the choice of vehicle.
For individual owners looking for long term buys, brand will matter.
But product trust, unlike in regular diesel or petrol vehicles and petrol two wheelers has to be built not just by brands individually but jointly together and along with lets say the local Government.
Interestingly, two wheeler market leader Honda with a 43% share of two wheelers recently launched its electric two wheelers which are priced on the higher end of the spectrum, between Rs 1.1 lakh and Rs 1.5 lakh.
Honda appears to be saying that it intends to approach this business as a business, without discounting or depending on subsidies from the Government which are shrinking in any case for a whole variety of reasons.
It is also indicating its confidence in its pricing and brand and of course trust it already enjoys as an automotive brand.
As the electric vehicle industry matures rapidly in 2025 and value conscious users hopefully get over their early fears, India could do a leap if not a leap frog into green mobility much faster, at least proportionately than many other countries.
While manufacturers are working hard on the back and front end on batteries, including battery swapping, building trust, a more subjective task, is something they have to jointly do.
(Maruti Suzuki has announced fast charging points in India's top 100 cities - one every 5-10 kilometres and a battery rental service while Tata Motors and Hyundai says they will set up 500 and 600 public chargers),
Hopefully 2025 will see a lot of that.
And that brings us to the top stories and themes of the day
The stockmarkets are still under pressure, on standby for Budget cues.
India is now experiencing a structural slowdown, says UBS.
On Trump’s inauguration day, how could potential import tariffs hurt India’s apparel industry.
Reliance retail has reported strong Q3 results, does that mean consumer products are doing well ?
Will the US step up or down sanctions on Russian oil ? And what that could mean for India ?
India’s forex reserves are at 10 month low, down $79 billion.
The Markets On Standby
Friday last week saw the markets slide again after a 3-day winning streak.
The 30-share Sensex fell 403.24 points to close at 76,639.58 while the NSE Nifty50 ended at 23,203.20, down 108.60 points.
Among the broader markets, the Nifty Midcap100 and Nifty Smallcap 100 indices were up on the other hand with gains of 0.23 per cent and 0.16 per cent.
Earnings season is still on in full swing though nothing within them including positive earnings from heavyweights like Reliance is really changing the mood even if the stocks are reacting positively for a while.
Last week, the BSE benchmark tanked 759.58 points or 0.98 per cent, and the Nifty declined 228.3 points or 0.97 per cent.
This week will see results from the consumer product giant Hindustan Unilever which should give us some sense of urban demand.
Foreign investors have now pulled out close to $5.2 billion in the month of January or this month now, following a close to $2 billion inflow in December.
There are pulls and pushes.
The dollar is strong, bond yields in the US are rising and in India, earnings season is looking weak already.
The rupee continues to depreciate and more on that shortly and of course valuations which are still seen as somewhat high by many institutional investors.
In the whole of 2024, FIIs barely invested a net sum of $50 million.
Rupee Forex Reserves
India has evidently now decided to let the currency float against the US Dollar, a strategic shift that we discussed in some detail last week.
In retrospect, it does appear strange why the mandarins at the Government were going so all out to protect the currency from depreciation to a more realistic level.
Be that as it may, it's all coming back to bite the economy now.
Meanwhile, India's foreign exchange reserves fell for a sixth straight week and stood at a 10-month low of $625.87 billion as of Jan. 10, data from the Reserve Bank of India showed on Friday, reported by Reuters.
The reserves declined by $8.72 billion in the reported week, the most in two months.
They have fallen by a cumulative $23.5 billion in the prior five weeks, and are down by $79 billion from their all-time high of $704.89 billion hit in late September, Reuters reported adding that changes in foreign currency assets are caused by the central bank's intervention in the forex market as well as the appreciation or depreciation of foreign assets held in the reserves.
The RBI has been intervening on both sides of the forex market to curb undue volatility in the rupee.
The RBI will be more judicious in its use of foreign exchange reserves to mitigate domestic currency market volatility amid strong global headwinds, Reuters reported this week.
The rupee settled at 86.61 to the dollar on Friday, and fell 0.6% this week, its steepest weekly decline in 18 months.
UBS Says Structural Slowdown
UBS Group AG is recommending investors should short India’s rupee and go underweight on the country’s stocks amid slowing economic growth, Bloomberg is reporting.
The bank’s research group said India’s $4 trillion economy has entered a structural slowdown that can’t be explained by cyclical factors like oil-price hikes or declining government spending.
A structural slowdown in India is a call no other institutional investor appears to have taken and of course no resident economist has said something like this.
The deceleration is underpinned by a long-term moderation in credit growth, foreign direct investment, export competitiveness and earnings potential, UBS said.
The “conventional wisdom that India is ‘far removed’ from Trump risk compared to other emerging markets is debatable,” said Manik Narain, head of EM strategy research at UBS.
“A potentially higher-for-longer US yield environment poses challenges to India’s growth, with one of the highest debt service-to-revenue ratios in the major EM space.”
Apart from the losses in equities UBS says India’s bonds are recording the fastest outflows since 2020 as euphoria over their inclusion in global bond indexes wanes.
Market losses follow a slowing in real GDP growth over successive quarters, showing the Indian economy slipping below the 7% average generated before the Covid-19 pandemic.
Disappointing business updates following a decade in which companies in the Sensex index failed to meet analyst expectations have underscored the bearish turn.
UBS says that the moderation in India’s earnings growth is spreading to defensive parts of the economy — such as consumer-staples — showing that temporary factors such as government capital expenditure are not the only reasons behind the slowdown.
Elsewhere, UBS says there is credit moderation, china deflation which will lead to tougher competition, slowing FDI which is a big concern as India saw only around $3 billion in the past 12 months.
Equities are now 23% of the financial assets of Indian households and 60% of bank deposits. That means the market can no longer be termed “underpenetrated,” UBS said, adding that as per their valuation methodology, the country’s stocks trade at a 72% premium to the rest of emerging markets, a premium “unheard of even 12 months ago.”
Narain said investors should buy bearish rupee options, pricing in a further 2.6% depreciation this year. However, the bank also recommends rate-receiver positions via five-year swaps to benefit from an eventual 75 basis-point rate reduction.
All Eyes on Russian Oil
Oil prices were lower on Friday though up for the fourth straight weekly gain, as the latest U.S. sanctions on Russian energy trade added to worries about oil supply disruptions.
Brent crude futures dipped 50 cents, or 0.6%, at $80.79 per barrel, but gained 1.3% this week.
"Sanctions on Russia are causing tightness of supply in Europe, India and China," an analyst with Price Futures Group told Reuters.
Meanwhile, advisers to President-elect Donald Trump are crafting a wide-ranging sanctions strategy to facilitate a Russia-Ukraine diplomatic accord in the coming months while at the same time squeezing Iran and Venezuela, Bloomberg is reporting.
This comes on the heels of a bombshell range of sanctions on Russia’s oil trade by the US in the Biden administration.
The two approaches apparently under consideration include offering some sops for sanctioned oil producers or ramping up pressure further.
The latter is not good news for oil prices.
Scott Bessent, Donald Trump’s nominee for Treasury secretary said Thursday he supports dialing up the sanctions on the Russian oil industry to end the war in Ukraine.
Brent futures have gained almost $5 a barrel since Biden’s measures were announced.
Some analysts anticipate further gains, something that would drive up fuel costs around the world.
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This segment was supported by India Energy Week 2025 scheduled from February 11-14, 2025, in New Delhi and you can register for the same using the link in the show notes.
Tiktok Goes Dark
TikTok suspended its services for US-based users while Apple Inc. and Google removed the platform from their mobile app stores to avoid penalties under a new law.
The social media company is now standing by for a possible reprieve from President-elect Donald Trump to continue operations.
Such a reprieve would obviously mean that the security considerations around the app’s Chinese ownership that were in play in the run upto the ban will not matter any more.
This is quite surprising to say the least.
India banned more than 200 Chinese apps including Tiktok, also on security concerns.
“A law banning TikTok has been enacted in the U.S.,” TikTok said in a notification on the platform to users late Saturday. “Unfortunately, that means you can’t use TikTok for now.”
Apple and Google removed TikTok from their mobile app stores in the US as required by a law that took effect Sunday. TikTok’s legal challenges failed to head off the measure, which was passed last year to address national security concerns.
Trump said Saturday he would “most likely” give TikTok a 90-day reprieve from the law, providing Chinese-owned parent company ByteDance Ltd. more time to find a buyer.
Trump also told NBC in an exclusive interview that he’d probably announce it on Monday, after he is sworn in, according to reports.
It is also surprising that the first thing the President of the United States as he takes over will most be a deal with a Chinese social media app company, against all other trade and economic issues.
Which obviously reflects the power of social media apps.
And China.
How Will India’s Apparel Exports Fair?
All eyes will be on the United States and its impending tariff regime or the threat of it.
Let's look at apparel.
According to the Coimbatore based Indian Texpreneurs Federation, The United States imported roughly $73 billion of apparel in the months between January and November 2024 and was on course to hit around $80 billion for 2024.
Of this, China and Vietnam have the major share holding 21% and 19% of exports from there or imports into the US.
Bangladesh is at 9.3% and India is at 6%.
Indonesia and Cambodia both around 5.4% a little behind.
So the big question is of course what happens if the US raises tariffs as threatened, even by 10% on Indian apparel, in this case.
More importantly, how is the apparel industry positioned at this point, including whether India has benefited from the recent turmoil in Bangladesh which as we saw as a higher share of exports into the US.
I reached out to Prabhu Dhamodharan, convenor at the Indian Texpreneurs Federation which represents some 450 textile companies in the textile manufacturing chain including apparels and also in the well known export hotbed Tirupur area.
I began by asking him where India’s apparel exports stood right now and the market view so to speak.
INTERVIEW TRANSCRIPT
Prabhu Dhamodharan: We can see whether we want to understand from the perspective of whether this changes happening in Bangladesh, whether it is bringing a cyclical or structural opportunity to India. Before going into the subject, I can throw some numbers so that we can simplify things in a very clear manner. Monthly run rate of apparel exports from India is in the range of $1.2 to $1.3 billion on an average and Bangladesh is at $3 to $3.3 billion, Vietnam at $3 billion and monthly run rate of China's apparel export is in the range of $11.5 to $12 billion, almost 10 times the size of our apparel exports. This is the number we are seeing for the past many months, maybe ups and downs are there. And so naturally from the low base of $1.2 to $1.3 billion, opportunities are definitely big and growth is very much possible. And India predominantly we are a domestic focused textile manufacturing economy because we have a very robust market of $90 to $100 billion of domestic consumption and that is growing year on year based on the inflation etc.
Sometimes we may not grow, sometimes we may grow, but overall if you take a five year period there is a steady growth happening. And the issue is with apparel exports, where apparel and textile exports are stagnant for the past many years. And there are structural issues because let us see one by one.
And so to answer your question, we are directionally positive towards Bangladesh plus one opportunity. At the same time, personally we feel that China plus one is a real big opportunity. For example, if we grab 10% market share from Bangladesh, that may lead to $300 million additional exports to India per month.
But if we do the same math with China, if we are able to grab 10% market share from China, it will translate into a number of $1.2 billion per month. So the opportunity is more with China. At the same time, it's not easy to grab market share from any countries because Bangladesh also built scale and they're also very competitive in pricing.
So this current turmoil created a de-risking method mindset with buyers. So directionally, they are looking for India as a more stable, reliable and less volatile kind of a market. So they are very much keen.
So for that, how to reach that translate into a reality, we need to work more towards few things that I can explain later.
Govindraj Ethiraj: Right. So, but you're saying that at this point, and that is more specifically in the last five to six months, at least in the context of Bangladesh, or rather not even five to six, less than that last quarter, let's say. And China, maybe a last couple of years, has there been migration of contracts and have buyers been looking at India to expand their production and so on?
Prabhu Dhamodharan: Yes, it is happening. Interests are there. For example, China, where China plus one opportunity is actually real.
Lot of enquiries are flowing into India. And only thing is we need to work more on few things to capitalise. So far, we are not able to capitalise in a big way.
For example, what we need to do, that is a very important thing. We need to build scale, competitiveness, specialisation, market diversification, and FTAs. These five things are very, very important.
Because our apparel exports, if you take in terms of volume, for example, 2019 or 17-18 period, we exported around 54 crore number of t-shirts during April to October period. If you see current year number, we are at 56 crore. So like that, we can highlight many products.
Volume-wise, we are not growing in exports. So the interest is there to shift from China. We need to capitalise.
How to do that? We need to break down to few strategies. Number one, we need to build scale and competitiveness.
What is meant by scale and competitiveness? Buyer is giving a particular price. If we are able to match that price, including our profitability, naturally our volumes will grow and companies also will reinvest money.
For that, we need more integrated companies in India. We need to move towards two things. One is, we need to encourage the companies to go for ready-to-cut fabric ecosystem and full integration.
These two things can create global champions from India and we can build a lot of scale and competitiveness to compete in the global market, particularly in the mass volume items like $2, $3 apparel. So this is one area we need to build scale and competitiveness with the help of Mitra Park or many state governments are offering incentives. So we need to step up our game.
Even companies, policy makers, everyone need to align towards this kind of a change to build mega scale.
Govindraj Ethiraj: This is not, I mean, I'm sure this is a realisation that's been there for some time and manufacturers have been trying to increase capacity. So the question I would perhaps could pose is, what is stopping them or what is stopping us?
Prabhu Dhamodharan: Actually, there are a few factors. One is, your question is very valid. The southern states who are already doing very well in apparel exports have some kind of saturation or limitation of growth due to the dependency of migrant labours.
So whatever the possible efforts we are taking towards automation and also bringing, constructing hostels, kind of a thing to keep migrants here. So we need a common plug and play infrastructure in India at various parts of the country so that there are two things. One is plug and play infra so that common facilities can be created by the government and investors can go and invest.
And second, the staying facilities. And the electronics is already showing the model. So we need to duplicate in textile also so that if we are able to construct such kind of facilities, companies will go and invest.
Already Vietnam created such plug and play and combined with staying hostel facilities so they are very successful. We need to duplicate that model so that more investments can be attracted. And second point, specialisation I mentioned.
For example, US imports around 7 lakh crore worth of apparel. In that, 3.5 lakh crore apparel is from cotton and remaining 3.5 is from MMF. If you take our share, we are 10% plus in cotton apparel and just 2 to 2.5% in MMF apparel exports to the US. So almost 50% of the ground we are not playing the game. That means we need to improve our capabilities in MMF apparel manufacturing because now the trend is moving towards MMF apparel, athleisure, and lot of functional improvements are there in fabrics. So we are lacking there.
So it's a structural issue. It is not possible to overcome this in an immediate manner but at the same time, we need to work towards with a five-year plan so that something may happen or otherwise we can't grow in growing market, particularly in the growing segments. So specialisation, another area we need to work.
So this to answer your question of how we can bring kind of an interest among entrepreneurs to invest more, plug and play facility with hostel and staying facilities can be a game changer. That is the one area we need to focus here after.
Govindraj Ethiraj: So, but you're saying that, I mean, there are so many things which will go into manufacturing garments, but you're saying that the importance of skilled workforce, which is resident in and around factory is perhaps the most critical, one of the most critical components.
Prabhu Dhamodharan: Yes, it is one of the most critical components in terms of building scale. We have a great scale. We are the one of the best, low cost or very competitive producers of world-class yarn in the global arena.
But at the same time, after spinning alerts, like a majority of SMEs are working. SMEs also need to survive. We need to plan separate strategies for them.
For example, SMEs can concentrate on value-added apparel instead of fighting with $2, $3 apparel, which can be a space for large players. And SMEs also invest in automation. And SMEs also will enjoy this kind of benefit if we are able to give this kind of a common infrastructure of processing facility in a plug-and-play model.
And also it's right time to launch cotton PLA. For example, in the past, PLA scheme launched for mm of apparel, but now the opportunities are very big. It's right time to step in and announce a more suitable scheme for SMEs also in PLA, so that they can also scale up by using the opportunity.
Govindraj Ethiraj: Last question. So next week we'll see the inauguration of a new presidency in the United States and Donald Trump will take over, who's already threatened wide ranging tariffs, higher on countries like China, Mexico, Canada, but also uniform tariffs across many other countries, including potentially India. So how is the industry gearing for that, if so?
Prabhu Dhamodharan: See, it's a simple math. Already China lost around 6% market share in the over a period of five to six years. In US market, they came down from 27 to 21%.
And the benefit went to various countries. Each 1%, each like we gained 1%, Vietnam gained 2%, Bangladesh gained 1%. So the benefit is going to various countries.
Now with this Trump next version of tariffs, naturally China will have more duty that will motivate more businesses to more suppliers to more, sorry, more sourcing companies to focus on newer markets like India. At the same time, there are many things are there. For example, Sheen, new age e-commerce company, which has just come back into India with Reliance as well, yeah.
Yes, if you take US tariff, if it is a below 800, the small parcel orders like e-commerce exports are not under duty. Sheen and many brands are using, and I think 25 to $30 billion exports are happening in that manner. So they may attack that area also to stop such kind of an exports.
Because the Sheen kind of a model, it is from design to factory, they are designed to delivery, they are keeping 15 to 20 days time. It's a robust mechanism they created. So by using this loophole of the shipping parcels with e-commerce and eliminating duties, they gained a lot of volume.
So the Trump administration may look into that. Number two, how they are going to treat connector countries. For example, Vietnam is a very big connector country for China.
Whatever the amount of apparel ecosystem China gained experience exposure, they translated into Vietnam. Now Vietnam is almost near the market share of China in US. So how Trump administration is going to see the connector countries and whether they will impose tariff on Vietnam, that is main area we want to see so that some more benefit will come to India.
Govindraj Ethiraj: Thank you so much for joining me.
What Are Reliance Retail Results Telling us?
India’s consumer products sector growth is slowing down. While this is impacting the overall basket, how is retail doing and could the Reliance Retail results provide any clues.
Reliance Retail’s net profit in October-December rose 10.1 per cent to Rs 3,485 crore over the same quarter in the previous year while its earnings before interest, tax, depreciation and amortisation from operations increased 9.8 per cent to Rs 6,632 crore.
The company’s revenue from operations, at Rs 79,595 crore, was up 7 per cent year-on-year while its gross revenue increased 8.8 per cent to Rs 90,333 crore.
The company reported strong sequential growth driven by several factors including more productivity and festive sales.
Reliance said it saw a footfall of 296 million across formats and opened 779 stores in the quarter, taking the total to 19,102 stores .
Digital commerce and new commerce and these channels now contribute 18 per cent of revenue.
The fashion and lifestyle business and apparel and footwear witnessed a strong bounce back, led by launch of designs and improved store experience.
I reached out to Karan Taruani, consumer analyst and senior vice president at Elara Securities and began by asking him what larger signals he was seeing in the retail segment
INTERVIEW TRANSCRIPT
Karan Taurani: So, retail overall as a sector, I think is under some kind of stress. Now, it's a mixed bag. There are certain categories like the fast fashion segment, which are reporting strong growth in excess of 30-35%.
There are certain categories like FMCG, which are probably reporting muted growth, right? Because what has happened is that you have seen a transition towards quick commerce and more than 70-80% of the sales on the order volume on the quick commerce side is from FMCG. Beauty personal care as well is a mixed bag.
It has seen very good adoption on quick commerce platforms, e-commerce platforms, and online. And maybe that is why the traditional segment within that is also struggling. So, one has to understand the fact that even today as we speak, all these categories are very heavily dependent within the traditional businesses.
So, whether it be BPC or FMCG or apparel or any category, close to 70-80% of the revenue does come from the offline channel. Apparel, I think, has a higher online share. But broadly, if you look at the other categories, 70-80% comes from the traditional channel.
And digital channels are seeing adoption because of better customer experience, because of quick commerce, because of customers becoming impulsive in terms of purchases, and so much of competitive intensity within so many platforms. There are super apps, niche apps, which are there. So, clearly, if digital has to grow at a faster clip, it has to grow at the cost of traditional businesses, traditional segment rather.
So, if you look at the modern trade business, or if you look at the general mall store, kirana store, or any other general trade business, those are the businesses which are seeing muted growth. And that is where Reliance is also coming, and that's where other companies also play. So, whichever offline businesses are there, they are seeing muted growth at the cost of digital adoption.
Govindraj Ethiraj: So, how does one interpret a 9% year-on-year growth in this case, particularly given what sales or numbers would have been in previous years?
Karan Taurani: So, for Reliance, I think the base is extremely large. They are one of the conglomerates as far as the retail segment is concerned. And 7% growth on a yy basis is a reasonably good, healthy number.
Because last year, if you look at the base in the festive season, it was not that compelling, because there were not too many weddings. And I think this time around the festive season, we have seen more weddings as compared to what you would have seen last year. So, that has led to this flip.
The second thing which has led to some kind of flip for the growth in this quarter has been the base as well. So, if you look at it on a quarter-on-quarter basis, you are talking of 20% quarter-on-quarter growth, which is extremely strong, which did not happen last year as well, as far as growth is concerned. But this is coming at the cost of low base again.
Because if you look at Reliance Retail's performance in last year's festive, in the earlier quarters, they had reported growth on a QoQ basis. But this year, if you look at Q1, Q2 performance, and even Q4 for that matter, the base has kind of softened. And you've seen a decline anyway in the range of 4% to 5% on an average on a QoQ basis.
So, there are two factors to articulate here in terms of the boost in growth. One is, of course, the weddings. And second, of course, will be soft base.
Govindraj Ethiraj: Right. So, the company is saying they have about 19,100 physical stores right now, with some additions in the last quarter as well. So, how does this compare with their earlier portfolio of stores?
Karan Taurani: If you look at their stores, I think they've been adding stores at a very healthy pace. I think where they are right now in terms of overall retail space or in terms of the overall square feet present, they are on the verge of rationalisation right now. If you look at their overall retail space, it was around 73 million square feet last year, which is now at about 77-78 million on a YY basis.
There is growth here. But if you look at this on a sequential performance, or rather over the last two to three quarters, we are seeing a trend wherein you are seeing a decline in terms of the overall square feet space. Now, this could be because of two reasons.
One is, the new stores that are opening up may be even smaller in terms of size. Second, very big factor is that you are seeing rationalisation in certain categories. So, as I mentioned, FMCG, PPC, these are certain categories which are seeing very healthy adoption towards digital, led by e-commerce and quick commerce.
And this pace is going to intensify from here on. Because if e-commerce companies come into quick commerce, if they're able to deliver within 10 minutes, competitive intensity will grow towards quick commerce. And you will find more adoption towards the digital channel.
So very clearly, I think they are right now in a mode of consolidation. You may see another two or three quarters wherein there could be a decline in terms of these overall space and decline in terms of number of stores as well.
Govindraj Ethiraj: Right. And what would online be as a proportion in the current revenue or the total revenue mix right now?
Karan Taurani: So for Reliance, I think given the kind of size and scale that they operate in the retail segment, around 18 to 19% of their business today is digital and e-commerce. And within that, they are also trying to do many different things. For example, if you look at Jio Mart has been into the e-commerce side more for the FMCG segment.
They are also venturing into a lower lead time. They are trying to get into quick commerce in a different manner rather, wherein you will have the pickup of the products from the stores rather than having dark stores where our quick commerce operates today. So I think they are making inroads.
They are doing this entire innovation. They also don't want to miss the bus in terms of digital adoption, in terms of digital growth. But this number has to really scale up because this number has been stable over the last three to four quarters.
So this number has to go towards 30%, beyond 30% if we were to see that Reliance is doing well on digital as well. And I think it's going to be all about lead time, user experience, assortment, localisation. These are the mode which is going to drive the quick commerce engine in India today.
Govindraj Ethiraj: I don't know whether we have the insight into what margins are, but what is the difference in let's say profitability between the digital side and the physical side right now?
Karan Taurani: So we would not have the breakup of the digital and the physical margins for now. But as we all know that digital businesses are making losses. So if you look at the likes of platforms like Jio, Myntra on the fashion side, the other quick commerce businesses, the other e-commerce businesses, most large platforms are making losses.
And the reason is very clear. Why are they making losses? Because I think on the apparel side, majorly there's a lot of discounting push which is happening.
You need to give customers a lot of discount for them to kind of shop online, get used to shopping online, drive more frequency of the customers and also spend on promotions, marketing to acquire customers as well. So I think the online businesses are currently loss making in nature and that's what would be the one for Reliance retail as well for now because none of the platforms are making profits. But yes, I think there is one respite for online businesses today which is the digital advertising revenue.
I think ad revenue is going to be a very big lever for all these platforms to drive some kind of profitability. If you look at any of the e-commerce companies anywhere close to three to five percent of the GMB is ad revenue. So ad revenue is a very big lever to drive over profitability or reach a break-even part.
Govindraj Ethiraj: Right and when you say ad revenue, this is the money they earn for advertisements they display on their platforms as opposed to advertising elsewhere for consumers to buy.
Karan Taurani: Yes, absolutely. So if you look at all these platforms today they have got a reasonable customer base and as we all know as a thumb rule, ad dollars follows traffic, customer traffic. So because they have a reasonable customer base, because they have a customer base which is high frequent nature in terms of shopping experiences and they've got a reasonable amount of assortment as well, that is where typically the advertisers are interested and they want to kind of monetise that customer base on their platforms.
Govindraj Ethiraj: Right and last question, how are you seeing, I mean what is all of this telling you in terms of overall retail demand and consumption right now at a macro level?
Karan Taurani: Yes, overall retail demand has been mixed. If you look at the QSR companies as well you know which are a part of the F&B retail segment, even over there they have reported a decline in SHC or they are rather going to report decline in SHC for this quarter in the festive season. The festive has not been that great.
Apparel companies also, if you look at the fast fashion segment as the only segment which is reporting strong growth of more than 30 percent but that's primarily because it's a very small share of the overall apparel industry. But if you look at the industry as a whole there are no big positive surprises as far as growth is concerned. There are no big levers for margin improvement from here on.
So things I think are mixed on ground and I think over the near term they will remain to be how they are. We don't see any sharp acceleration as far as demand is concerned at least for now.
Govindraj Ethiraj: Right Karan, pleasure speaking to you. Thank you so much for joining me.
Karan Taurani: Thank you so much Govind, pleasure as always.
