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Ad spend rise hopes rest on RBI rate cut

18-June-2012
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Ad spend rise hopes rest on RBI rate cut

With the economy poised delicately, RBI’s cautionary advice ahead of today’s quarterly rate review came in view of inflation numbers released Thursday. The numbers highlight challenges faced by the bank in balancing growth and price rise worries.

Analysts and industry expecting promising rate cuts to kick-start economic growth might have to temper down their expectations. However, even a lower than anticipated rate cut might help convince large advertisers across industries to add extra money to their ad budgets boosting ad industry growth prospects for the current year.

In its annual industry outlook released at the start of this year, Pitch Magazine had projected a nine per cent growth for the ad industry. With one full quarter of slow growth behind us, most industry watchers don’t expect that figure to be bettered. With absence of a big TV property such as Cricket World Cup this year and lesser than expected revenues of IPL, Q1 numbers for the broadcasting industry have anyway been lower.

Sectors such as real estate, auto, financial services that get directly affected by interest rates have borne the brunt of plunging sales. Telecom, the star advertising sector of the last decade has seen companies squeezed of cash by multiple factors such as 3G licence costs and drying up of credit lines from lenders on back of scams that has led to a cut in ad spends.

But a cut in interest rates could change all that and convince companies to recalibrate their growth prospects and open up ad budgets. A 0.5 per cent cut in interest might not be enough to boost auto sales or increase home sales but it has the potential to improve investor sentiment and point towards easing liquidity situation, factors most important to kick-start consumer spending.

Recent hike in petrol prices and talk of diesel price hike has already added uncertainty to the auto sector’s prospects. Though industry and analysts in a recent article in exchange4media had predicted heightened ad activity by auto players to sell their petrol vehicle stock, continuation of sales trends of last couple of years might result into stagnation of ad spends, unless RBI cuts rates and makes vehicle buying more lucrative.

Consumer goods companies though have emerged as the silver lining. Unaffected by inflation and interest rates, people continue to use soaps and oils. Companies such as Marico and Colgate that countered the last round of downturn by increasing prices and cutting costs have seen profit margins rise that has allowed them the liberty of investing the extra earned cash in advertising.

In the three months ending March 2012, Marico had upped its ad spend by 76 per cent on YOY basis, indicating renewed push on chasing volume growth, a trend likely to continue this year. Increasing competition in the consumer durables sector is also forcing companies to up ad presence. In a recent PTI report, Sony India’s Managing Director Masaru Tamagawa was quoted to have committed a 30 per cent increase in ad spends for the company. To counter heightened competitive activity, the company is launching a slew of new models and backing them with elaborate ad support. Companies such as Canon, Nikon have been very active over the last quarter.

After a mixed last few years when leading companies such as Star, BCCL, Zee, Viacom have seen healthy growth on one hand and new entrants such as 9X, Imagine TV, Real TV shutting shop, media companies will be looking at RBI with keen interest to see how media companies will be looking at RBI with keen interest to see how the next few quarters shape up.

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