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Ad spend hopes slump with stocks on RBI shocker

19-June-2012
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Ad spend hopes slump with stocks on RBI shocker

On a day when Greece elections brought cheer to world markets, RBI in an unexpected move poured cold water over rate cut hopes choosing to keep the rates unchanged.

Choosing inflation control as priority over kick-starting growth, the central bank has sent out signals for the industry to prepare for a prolonged period of moderate growth. As recently as last Tuesday, industry was expecting aggressive action by the central bank but inflation data released Thursday moderated those expectations. Yesterday’s no action move by RBI took even the most pessimistic observers by surprise. Indian stock markets tanked right after the announcement.

WARC, a market intelligence service in a report released Monday predicted ad spends in India to grow at +9.3 per cent. But after taking inflation into account, India’s growth in real terms drops to just +1.1 per cent. Only European countries are forecast to achieve lower growth than this.

Most analysts and experts expressed disappointment at the move. Ad industry has been waiting for the central bank to cut interest rates to kick-start growth across industries that depend upon cheap credit availability. Sectors such as real estate, auto, financial services have taken a hit over the last couple of years and have subsequently gone slow on their ad budgets. A positive move by the central bank to push down interest rates could have helped convince companies in these sectors to pump in more money in advertising.

TAM data released recently indicated ad spends by key sectors such as consumer durables and financial services to have shrunk by 35 per cent and 15 per cent respectively in 2011. Companies across many key sectors have sat out the last few months on the sidelines hoping for the situation to correct before committing significant investment into advertising. With the latest dampener from RBI, the wait just might have gotten longer.

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