Can Kabir Singh really help our economy?
Economics of movies
Ravi Shankar Prasad may not be entirely wrong when he said that Rs 120 crore business done by three Bollywood movies on a single day seemed to suggest the country was in sound shape.
Prasad probably was articulating an economic phenomenon that the country was most likely going through. The Great Depression of the 1930s has the answer. The worst downturn saw the markets and consumer demand falling like ninepins. Everything was flat, except for the sale of lipsticks. Why was that?
The lipstick effect
In a crisis or when consumer trust in the economy is low, people will buy goods that have less impact on their available funds. Women buy lipstick and men spend money on items like gadgets or both, as Prasad said, watch movies, which might explain the puzzling phenomenon of good box office sales in a slowdown. This is called the lipstick effect.
One for the good times
Economists say when budgets are squeezed people simply substitute large extravagances for small luxuries. Cash-strapped customers want to treat themselves to the small joys of life to forget the hard times.
Food for thought
“The Indian economy is currently facing this situation partially,” says G Chokkalingam, Founder of Equinomics Research and Advisory. “Finding growth in this market is a difficult task.”
Media, entertainment, travel and leisure-linked stocks are all showing this effect, which has been most pronounced in multiplex stocks. Shares of PVR have risen 11.94 per cent on year-to-date basis till October 14, while those of Inox Leisure have gained 34.86 per cent to hover around their 52-week high levels.
Movies and lipstick
Movie is small-ticket luxury in India. High Box Office collections is a classic example of the Lipstick Effect at play in the economy.
Any tip for investors?
Experts advice investors to refrain from buying richly-valued stocks. Unless corporate earnings draw investors to other sectors, FMCG and leisure stocks will continue to head northward.