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 Stop. There’s a bump ahead

 By Dhaval Valia

The month of September hasn’t lived up to the channel’s expectations. Usually, September generates a significant enterprise demand as companies buy IT products to claim half-yearly depreciation benefits. But channels have reported a substantial dip in sales during the month.
October may again prove to be tough for the channels as the entire first half of the month will be consumed by Shradh which will affect buying in most western states, certain parts of the north, and a bit of the south as well.
There could be some respite for channels during the festive season which starts from the second half of October leading into November.
But I have serious doubts if the festive season buying this year will be as robust as in the last few years. That’s because broad economic indicators are pointing toward a slowing down of the Indian economy.
The consumer durable segment in July and August has registered negative growth in most product categories. Two-wheeler sales are down too. Industrial production growth has fallen from 9 percent in June to 7.1 percent in July. Finally, the impact of higher interest rates is reflecting in consumer and industry confidence.
Economists are already making a strong case for an interest rate cut on the back of a recent cut by the US, and also lower domestic inflation which has gone benign from a high of 6.4 percent in April to 3.9 percent in August.
But I again have doubts if the rate cut will happen soon. Considering the stark differences between the ruling government and its Left allies over the nuclear deal, most political analysts are predicting elections in April or May 2008.
In such a scenario the government may not take the chance of lowering interest rates lest its pushes up inflation; the government wouldn’t want rising consumer commodities prices to become an election issue.
Looking at all these factors, I am a bit grim about the IT business. My advice to channels is to exercise caution during the next couple of months. Taking a conservative view of demand may prove to be smart. 
Distributors and vendors need to closely monitor channel inventory levels during the last couple of months and ensure they do smart forecasting to avoid inventory pile-up.