AdEx in 2024: How are macroeconomic factors shaping India’s advertising landscape

The year began on a hopeful note with media agencies anticipating a recovery in advertising expenditure (AdEx). Year 2023 saw advertising expenditure hit a six-year low (excluding the pandemic year), growing only 10% to touch Rs 99,038 crore, against a projected 16%, as reported by the Pitch Madison Advertising Report (PMAR) 2024. Looking ahead, AdEx is expected to rebound in 2024, with a projected 12% growth to reach Rs 1.11 lakh crore, driven primarily by digital ad spending.

Media agencies remain optimistic that the shortfall in 2023’s performance is a temporary setback rather than a lasting trend. Meanwhile according to TAM, ad volumes for Jan-Jun 2024 present a mixed picture. TV saw a slight 3% drop compared to Jan-Jun 2023. Radio ad volumes grew by 3%. Print ad volume increased by 5% and digital advertising experienced a 3% growth.

These trends reflect how macroeconomic factors continue to shape the ad market. Here are some key economic drivers likely to impact AdEx in 2024.

Economic growth and consumer confidence : AdEx often correlates with GDP growth and consumer confidence. A strong economy boosts consumer spending, encouraging companies to invest more in advertising. Conversely, economic slowdowns can prompt brands to adopt a cautious approach, reducing ad budgets.

As per an October 2024 report by Deloitte, India’s GDP grew by 6.7% year-over-year in the April-to-June quarter, marking the slowest growth in five quarters. However, India continues to be one of the world’s fastest-growing major economies, and Deloitte projects this momentum will persist. Growth is expected to accelerate, supported by rising consumer spending, particularly in rural areas, as inflation eases and agricultural output strengthens following favourable monsoon conditions.

Deloitte maintains its annual GDP growth forecast at 7% to 7.2% for fiscal 2024-2025, and between 6.5% and 6.8% for the following year. A more subdued global growth outlook and a slower-than-anticipated recovery in Western economies could dampen India’s export growth in the next fiscal year.  Yet, India may see increased capital inflows, driving long-term investments and job creation as multinational corporations seek to optimise operational costs globally.

The Goods and Services Tax (GST) collection: GST collection in India serves as a key metric of economic health, influencing advertising expenditure (AdEx) in several ways. High GST collections reflect robust economic activity and consumer spending. For instance, in October 2024, GST collections reached Rs 1.87 lakh crore, marking an 8.9% year-on-year increase. Such growth signals a thriving economy, encouraging businesses to invest more in advertising to capture increased consumer demand. Certain industries, such as Fast-Moving Consumer Goods (FMCG), are directly affected by GST rates. Changes in GST rates can alter production costs and pricing strategies, subsequently influencing advertising budgets. For example, a reduction in GST rates for specific goods can lower prices, potentially increasing demand and prompting higher advertising spending to capture market share.

FMCG sector performance and rural demand: As one of the largest contributors to AdEx, the FMCG sector's performance directly impacts advertising spend. Any shifts in FMCG demand—driven by consumer purchasing power, inflation, and rural market growth—will influence the sector’s ad budgets. A robust FMCG market could boost AdEx, while sluggish growth may result in tighter ad spending from this key industry.

In the first half of 2024, the FMCG sector exhibited mixed performance across various companies.

For instance, Marico Limited in Q2 2024, reported a nearly 20% increase in consolidated net profit, reaching Rs 4.23 billion. However, Marico's ad and sales promotion expenses increased 8% to touch Rs 290 crore.  On the other hand, in Q2 2024, Dabur experienced a nearly 18% decline in consolidated net profit, amounting to Rs4.25 billion. The company cited subdued urban demand and the impact of heavy rainfall and floods as key factors affecting performance.  Their advertisement and publicity expenses turned out to be Rs 225.63 crore, which was 4% less than Q1 FY25 when it was Rs 235.89 crore but also 4.2% higher than Q2 of FY 2023-24.

Overall, the country’s FMCG industry is poised for a projected growth between 4.5% and 6.5%. Rural demand, heavily influenced by monsoon performance and agricultural output, also impacts FMCG spending, thereby affecting overall ad budgets.

Given that India experienced 7.6% more rainfall than normal during the 2024 monsoon season, compared to 2023, rural demand is expected to remain strong.

The sector's trajectory will be critical in shaping advertising investments in the coming months, as companies adjust their strategies in response to consumer demand, economic pressures, and market dynamics.

Commodity prices: Rising raw material costs can affect profitability across sectors, prompting brands to adjust ad budgets to offset increased production expenses.

Just like FMCG, in the first half of 2024, India's commodity markets also showed varied performances across different sectors, impacting several key companies. Dalmia Bharat Sugar and Industries, for instance, reported a 48.8% decline in second-quarter profits, primarily due to the Indian government's sugar export ban, which increased inventory costs and squeezed margins.

Profit before tax dropped to Rs378.9 million for the quarter ending September 30, compared to Rs740.2 million the previous year. In energy, Indian Oil Corporation (IOC) clocked approximately 99% drop in second-quarter profit due to shrinking marketing margins. Standalone net profit fell to Rs1.8 billion for the period ending September 30, significantly falling short of analysts' expectations that it was around Rs 43 billion. For the same period, Hindustan Petroleum Corporation Limited (HPCL) also reported a significant decline as their consolidated net profit fell 97.5% year-on-year (YoY) to Rs 142.67 crore as against Rs 5,826.9 crore reported in the corresponding quarter of the last fiscal year.

In metals and minerals, Adani Enterprises reported an increase in second-quarter profit due to high demand in its renewable energy division. Net profit touched to Rs 17.42 billion growing from Rs Rs 2.28 billion the previous year.

There is also the growing gold prices which is an important factor impacting adex. Domestic gold prices reached record highs, prompting consumers to exchange old jewellery for new to avoid high costs. This behaviour led to a nearly 20% decrease in gold imports, with expectations of a four-year low in demand. Marketing spends by companies in the space remained flat even during the festive season.

Interest rates: In the first half of 2024, the Reserve Bank of India (RBI) maintained the benchmark policy repo rate at 6.5%, continuing the stance from the previous year. This decision was influenced by several factors like inflation control and economic growth.

High interest rates make borrowing more expensive, affecting companies’ ability to fund expansion or marketing initiatives. It can also reduce consumer credit, impacting sectors like automotive and real estate, which are significant advertisers.

Automobile performance: In the first half of 2024, India's automobile industry saw growth across various segments; however, sluggish sales in recent months have prompted some carmakers to reduce ad spending, while market leaders hold steady.

Industry leaders like Maruti Suzuki, Tata Motors, and Hyundai have maintained their advertising budgets and are expected to keep them at par with 2023 levels. In contrast, companies like Mahindra & Mahindra, MG Motors, and Skoda have scaled back their ad spending, according to industry estimates.

For instance, Mahindra & Mahindra’s ad budget is projected at Rs310 crore for the year, a significant drop from Rs890 crore in 2023, with around Rs200 crore already spent by August. MG Motors is expected to spend Rs110 crore, over 60% less than the Rs290 crore spent last year, while Kia India’s ad budget may decrease to Rs170 crore, nearly Rs100 crore below last year's figure, based on current spending patterns.

Global economic conditions: Global factors like geopolitical tensions, currency fluctuations, and supply chain issues can affect imports, exports, and overall economic sentiment, influencing advertising budgets across various sectors.

The Indian IT sector for instance faced challenges due to reduced global demand for technology services. Major companies like Tata Consultancy Services (TCS) and Infosys reported slower revenue growth, attributing it to cautious spending by clients in the U.S. and Europe amid economic uncertainties.

Tata Consultancy Services posted a 5% year-on-year increase in Q2 net profit, with revenue up by 8%. Operating margin also saw a slight contraction. For Infosys, operating margins saw a marginal decline of 0.1% YoY and were flat QoQ.

Then there are export-oriented textile firms that faced reduced orders from key markets like the U.S. and Europe, where consumer spending declined.

Other factors like funding for startups, growth of e-commerce, digital transformation and seasonal events like festivals, election and major sports events also boost AdEx. The general elections and T20 Men’s cricket World Cup were two such major events that significantly pushed AdEx northwards.