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Home / Industry / Retail /  Rural demand to stay muted in Jul-Sep; likely uptick in H2 FY23: Report
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New Delhi: Rural demand for packaged consumer goods could pick pace in the second half of FY23, analysts at Edelweiss Securities said in a report on the sector. However, the report said that a deficient monsoon in large states continues to hurt rural consumption.

“Currently we have not picked up on any significant signs of an uptick in rural FMCG demand. Although, overall monsoon has been quite good, but headline data hides the deficit in 3-4 high population states. We expect market leaders like HUL, Asian Paints, ITC, etc. to continue gaining market share in terms of volumes, apart from continuing strong pricing growth," analysts at Edelweiss Securities said in a report released Thursday.

To be sure, rural India accounts for an estimated 36% of sales of packaged consumer goods.

“Inflationary pressures pushed rural consumers to ration their consumption, which has impacted volumes even in Q2FY23. We expect margins for the sector to remain under pressure in Q2FY23, with a revival in margins from H2FY23E," they added.

Demand for FMCG products in rural areas was lower than urban areas in the June quarter with volumes dipping 2.4%, researcher Nielsen IQ had said last month.

Analysts at Edelweiss said that it is too early to point to any recovery in rural demand, however the second half of the current financial year could yield different results.

Rural demand could remain muted in populous states of Bihar, Uttar Pradesh and West Bengal, they said.

“This year, people are gearing-up to celebrate the upcoming festive season, minus the restrictions, for the first time in two years now. Although this will aid growth revival, especially in the gifting and discretionary segments, rural demand could remain low in Bihar, UP and Bengal—led by rainfall shortages this year, thereby impacting incomes," they said.

The report pointed to more stability in rural demand over the next few quarters as lower inflationary pressures prompt companies to take price cuts and expectations of a normal monsoon during the remainder of the year help lift demand.

“In H2FY23E, base for rural FMCG demand will start becoming favourable. Grammage cuts will likely reverse as costs ease, aiding volume growth. Government policy support and easing commodities have the potential to pacify inflation in fertiliser and diesel prices. Normal monsoon in most parts of India in FY23 will help boost sentiments and crop output. Separately, urban remittance should see an improvement with most migrant labourers having returned to urban centres," they said.

Consumer-focussed companies flagged a muted rural demand in the September quarter, Mint reported on Friday.

However, green shoots for recovery in rural demand for FMCG could be visible in the second half of FY23.

“Previous rural slowdowns were due to demonetisation, liquidity crunch for wholesale and weak monsoons; none of these issues are currently present big, lending credence that in H2FY23, we could start seeing green shoots for recovery in rural demand for FMCG," analysts at Edelweiss said.

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