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New Delhi: Demand for fast moving consumer goods is expected to recover in the second half of the current financial year, said analysts.

Companies reported a moderate volume growth in the September quarter as higher prices of everything impacted consumer demand; this was especially true for demand in rural markets.

“A softer base and possibly easing inflation are expected to gradually help rural demand recover in H2FY23/FY24. While H1FY23 was marred by weak margins and slowing demand, tailwinds seem to be emerging from easing raw material inflation, winter and festive demand," analysts at Nuvama said in a research note on Tuesday.

The FMCG industry grew 8.9% from a year ago period in value terms in the September quarter, led mainly by price hikes taken by manufacturers. However, FMCG sales volume declined by 0.9% in the September quarter, researcher Nielsen IQ said in a report last month.

During the quarter raw material prices remained elevated and dampened margins across consumer companies. Furthermore, high inflation in fertilisers and diesel coupled with low rainfall in populous states hurt rural demand, leading to tepid volume growth, down-trading and volume decline across segments.

However, with inflationary headwinds moderating and an uptick in demand during the festive month of October, analysts said the worst may be over for the FMCG industry. “While inflation affected growth and margins, normal mobility and early festive demand has delivered good demand recovery. Urban pockets outpaced rural, especially in the luxury/premium categories and continue to see good traction," analysts said in their report on the consumer sector.

“In all, we believe the worst is over for FMCG with a gradual recovery underway," analysts at Nuvama said.

In fact, as demand improves over the next few months, companies could also ramp up new product launches.

“As margins are improving, we expect ad spends to rise too as companies could then take a more aggressive stance," they said.

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