The 2009 monsoon has been the most deficient since 1972, India’s Met department has said. Investors have been concerned about the impact on demand for consumer products, especially for consumer non-durables. But the situation on the ground may not be that bad.
In a presentation made to investors in end-September, Hindustan Unilever Ltd (HUL) talked about how it expected mitigating factors to partly offset the impact of a poor monsoon. Self-employed farmers have the largest share at about 40% among rural households. HUL expects this category to gain from a 40% increase in the minimum support price for crops. Daily wage earners come next, accounting for 36% of households.
They are expected to benefit from the government’s National Rural Employment Guarantee Act Scheme— which guarantees 100 days of work to poor rural households—with wages being hiked by 30%.
Salaried employees will not be affected and government employees will see wages rise because of the pay revisions. As a result, HUL expected rural household incomes to increase and disposable incomes to be high.
This optimism seems to be borne out at the market level, too. ICICI Securities Ltd, in a quarterly research report titled Retail Counter, wrote about how the market has not shown any signs of a slump in July and August. It quotes AC Nielsen retail sales audit figures, which show that consumer non-durables sales in July-August were up by 14.2% over the same period a year ago. Though the growth is lower than the 16.3% growth in the June quarter, it is more due to a base effect. The base effect will be in play for the September and December quarters, as sales grew by 18% and 20.8%, respectively, in these quarters in 2008-09.
Graphics: Ahmed Raza Khan / Mint
Most of the large categories are growing well, with the exception of edible oils, which suffered because of lower prices. Detergents, soaps and skin creams are showing good volume and value growth.
But the impact is not uniform across companies, with some such as Godrej Consumer Products Ltd and Tata Tea Ltd doing quite well, whereas companies such as HUL and Britannia Industries Ltd are growing at much slower rates.
In some companies, volume growth is playing an equal role in healthy and sustainable sales growth whereas in some, rising prices are playing a bigger role. The FMCG Index on the Bombay Stock Exchange is up by 5% over a month ago, reflecting some of this optimism, although the sector has been an underperformer.
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