Mumbai: Prospects of a weak monsoon at a time when rural demand is tepid will likely dent hopes of a recovery in the consumer packaged goods sector in 2015.

Growth in the sector declined to 7% in 2014, the worst in five years. In a November report, insights provider Nielsen had predicted that growth in the consumer packaged goods sector would revive to 10% in 2015 and 12% in 2016 as consumer sentiment and economic conditions improve. Growth in 2013 was 12%. However, untimely rains in February and forecasts of a weak monsoon now could prevent that recovery.

“Rural spends will be impacted this year and this will cause the overall rate of the sector to come down this year," said Piyush Mathur, president, India, Nielsen. The firm is yet to give out revised growth rates for the sector.

Unlike in the past couple of years, when urban demand pulled down growth, the slowdown in fiscal 2015 was due to weak rural demand. This could continue for the next six to 12 months, said experts. “If rains are poor... the impact on rural demand and growth could be more substantial," said a 23 April report by HSBC Global Research, explaining that the cycle of low minimum support prices and rural wage growth, combined with soft global commodity prices is impacting rural spending. Rural sales account for more than 40% of Hindustan Unilever Ltd’s revenues, and 35-40% for Colgate-Palmolive India Ltd; for Dabur India Ltd, Nestle Ltd and Britannia Industries Ltd, rural sales account for 30-35% of overall sales, said a 24 February report by Ambit Capital.

At the end of fiscal 2014, rural revenue growth rates for many firms were two to three times higher than urban growth rates.

However, rural demand has seen a substantial moderation over the last nine to 12 months, resulting in the narrowing of the ratio between rural and urban growth rates to one to two times, said the Ambit report. The gap may narrow further this year and growth rates in urban and rural markets may be comparable, said Nielsen’s Mathur.

“The rural consumer is more cautious than the urban consumer and when there is any uncertainty they tend to become more conservative with their spends," said George Angelo, vice-president, sales (consumer care division), Dabur India, who felt the impact will be far worse for the consumer durables sector and for big-ticket purchases.

Rahul Gyanchandani, joint managing director, RSPL Ltd, the maker of Ghari detergent, agreed. “The Indian economy is agriculture-based and, hence, the untimely rains will have an impact on the economy as the discretionary spends will be impacted," he said, adding that categories such as consumer durables will be affected far more.

Apart from uncertainty over rural spending, the broader tepid outlook for consumer spending is also persisting. “The outlook is not looking very positive. We are seeing a slight uptake, but not to the extent that we like," said Chandru Kalro, managing director, TTK Prestige.

Even so, there are signs of a marginal improvement. Godrej Consumer Products Ltd, one of the first consumer firms to report earnings this season, on Tuesday posted better second-half sales, compared to the first half of fiscal 2015, and said it expects fiscal 2016 to be better than 2015. “Directionally, every quarter from quarter one to quarter four, the numbers are looking up... It will not be a stellar year next year... but we still feel quite hopeful," managing director Vivek Gambhir said over the phone after the firm’s earnings announcement.

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