New Delhi: A below-normal monsoon, and the consequent dip in sentiment in rural markets, could hit sales of consumer durables manufacturers during the festive season that typically accounts for about 35% of their annual sales, say experts. Rural incomes are dependent on monsoon rainfall, currently around 12% below normal across the country with some regions seeing rainfall that is nearly 30% below normal.

The extended festive season starts with Onam in Kerala and ends with the New Year sales when retailers offer huge discounts on products. Dussehra, Diwali and Christmas fall in between. Onam was celebrated last week.

Unlike the 20-25% volume growth that companies have seen in recent years, growth is likely to come down to about 10% this season, according to executives at consumer durables companies.

Value growth could be around 10-15% because urban markets are beginning to show some sign of revival, they add.

Still, volumes will be low because a large chunk of festive sales comes from rural and semi-urban areas; in big cities, sales are spread across the year and festive season purchases are mainly replacements. And rural markets have been the worst hit by poor rainfall because agriculture is the predominant source of livelihood in India’s rural hinterland.

“Onam is an indicator for the whole festive season. Going by that, around 10-15% value growth is what we expect. The rural and semi-urban markets are yet to pick up. A bad monsoon leads to poor agricultural income and that hits consumer durable firms hard. Whatever growth we expect will come from urban markets. Thus, marketing and promotions will be urban centric," said Kamal Nandi, business head and executive vice-president at Godrej Appliances.

Besides, the depreciating rupee may have some negative impact on sales of consumer durables makers as appliances are heavily dependent on imports. “Sales during festivals are usually very high, but vary from year to year depending on the macroeconomic solidity and general flexibility in consumer sentiment. This season, rupee depreciation might lead to an increase in product prices passed on to the consumers, thereby impacting the sentiment," said Manish Sharma, president of Consumer Electronics and Appliances Manufacturers Association (CEAMA), and managing director of Panasonic India and South Asia. However, there may not be any immediate price increase considering the weak market sentiment, he added.

According to Shantanu Dasgupta, vice-president (corporate affairs and strategy) at Whirlpool of India Ltd, the company had low double-digit growth during Onam. “Last year, Diwali was better than Onam in terms of growth. We expect the same this year. However, rural markets are a concern for the industry. Urban markets are behaving relatively better as replacements are taking place," he said.

It has been several years since the industry has seen growth of 20% or more during Diwali, Dasgupta said, adding that the best year for the industry was the 2010 festive season when the industry saw sales jump 40-50%.

Companies that have phones in their portfolios, such as Samsung Electronics, LG Electronics, Sony India and Panasonic India, are expected to have a better year. Sure enough, much of Samsung’s marketing and promotional activity during Onam was centred around mobile devices and that will continue considering the fact that it now gets about 70% of its revenue in India from sales of mobile devices.

Samsung, LG and Sony did not respond to queries on targets and plans for the festive season.

The consumer durables segment of the Index of Industrial Production saw a 12.5% fall in the year ended 31 March 2015, the lowest in over two decades. Analysts expect the recovery in consumer spending to happen at a snail’s pace as the government has tightened subsidies and rural spending has been curtailed drastically.

The appliances and consumer electronics sector in India is estimated to expand at a compounded annual growth rate of 13.4%, to touch $20.6 billion (around 1.4 trillion today) by 2020, according to a recent study by consulting firm EY and CEAMA.

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