The September quarter did not bring much respite for Indian fast-moving consumer goods (FMCG) firms, even though some companies managed to fare better than others.

Another quarter down the lane (Q3FY20), investors would do well to keep expectations low as hopes of a demand recovery have not played out as expected. In fact, analysts expect growth rates to taper down sequentially.

“Growth is still slowing down and December quarter will mark the low of 2019, with revenue growth at below 5% and volume growth at about 3%," said analysts from Credit Suisse Securities (India) Pvt. Ltd in a note to clients.

“New headwinds have appeared such as: a sharp spike in food inflation, cutback in state government spending and jump in telecom tariffs. All of these will hit low income consumption in mass FMCG categories," they added.

Disruption in some parts of India owing to the Citizenship (Amendment) Act is also expected to adversely impact volumes.

According to SBICAP Securities Ltd, “With no signs of material benefits from the recent central government actions to stimulate economy, rural growth has remained slower than urban and has further moderated, as per our checks." The broker expects volume growth for its coverage stocks to further slow to about 3% in Q3FY20, versus 8% in Q3FY19 and 4% in Q2FY20.

Kotak Institutional Equities expects most companies in their consumer staples’ coverage universe to report similar or lower year-on-year volume/revenue growth than in 2QFY20.

In its December quarter update before results are announced, Marico has said “The India business as a whole posted a marginal decline in volume growth." This is compared to a marginal growth in the September quarter.

Godrej Consumer Products Ltd (GCPL) said in its December quarter update, “We witnessed relatively mixed demand across some of our geographies of operations." Despite weak demand conditions in India, the company continued marginally higher than mid-single digit volume growth trend during the quarter, added GCPL.

Kotak expects Hindustan Unilever Ltd’s underlying volume growth at 4% for Q3FY20. The measure stood at 5% for Q2FY20.

On the other hand, Nestle India Ltd, which enjoys a higher urban exposure, is expected to continue to perform better.

Having said this, earnings growth is expected to look better-than-revenue growth. “Cutting ad spends is the key margin lever, as gross margin tailwinds are getting over," reckon Credit Suisse analysts.

“Earnings growth outperformance driven by margin expansion and tax cut benefits likely to continue," said SBICAP analysts.

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