New Delhi: Market researcher Nielsen lowered its annual sales forecast for India’s packaged goods sector on Wednesday, as consumption cooled for the third straight quarter, led by a sharp rural slowdown.

Sales of fast-moving consumer goods (FMCG) grew 10% in the three months ended 30 June, Nielsen said in its quarterly insights report, down marginally from the year-ago period and down 3.4% from the preceding quarter.

“In Q219, FMCG value growth has dropped to 10% inching towards a slowdown; this follows the softening from the highs of Q32018 when the sector grew by 16.2%," Nielsen said in a statement. Nielsen follows a January-December year.

In the first half of the year, growth in FMCG sales was 12%, lower than Nielsen’s earlier prediction of 13-14% for the same period. For the second half, Nielsen expects growth of around 8%.

Nielsen lowered its 2019 growth forecast for FMCG to 9-10% from its previous forecast of 11-12%, citing macroeconomic factors such as slowing growth and the impact of a deficient monsoon. Within this, food categories are expected to grow at a higher rate of 10-11%, while personal and home care are expected to grow 7-8%.

India is an agrarian economy significantly dependent on rainfall, Sunil Khiani, head of retail measurement services at Nielsen South Asia, said at a press conference in New Delhi. “So, the distribution of rainfall is critical. Also, we have to see how GDP and inflationary trends play out that will have a huge impact on consumption."

The slowdown in growth was more pronounced in rural markets, even as they continued to grow ahead of urban. “Rural is slowing down at double the rate of urban," noted Nielsen, something that could reflect in the upcoming June quarter earnings of some of India’s biggest consumer goods companies.

The slowdown in sales of FMCG products in the hinterland, accounting for 37% of spends for the sector, occurred at a sharper pace compared to urban markets. Rural growth dipped to 10.3% in the April-June quarter, down from 12.7% clocked in the year-ago period. Compared to the third quarter of 2018, FMCG growth in rural areas fell 9.7%.

“Rural India has historically been growing around 3 to 5 percentage points faster than urban on account of increasing affordability, availability and demand. However, rural growth is slowing down at double the rate of urban in recent quarters. This has brought rural growth closer to urban growth in Q219," Nielsen said.

The rural slowdown is most pronounced in north India, followed by the west. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra, and Assam are among the states leading the slowdown.

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