Consumer goods makers are hopeful a ‘normal monsoon’ will heat up demand

“I think demand should come back by the second half of this year. We are hoping the festive season should be good; it’s been a few quarters of subdued demand," said Anuj Poddar, managing director and chief executive, Bajaj Electricals Ltd.

“I think the trigger points can be interest rates; at some point, interest rates have to come down. From a GDP perspective, if you see the B2B and infrastructure side (they are) doing well, while the consumption side has been slow," he added. 

The Reserve Bank of India last week left the policy repo rate unchanged at 6.5% to allow for retail inflation to move closer to its 4% target, while keeping its inflation projection unchanged at 4.5% for this fiscal year.

Earlier this week, private weather forecaster Skymet said it expects India to witness a normal monsoon in 2024. Last year, the monsoon ended with ‘below-normal’ rainfall with a 6% shortfall. Monsoon is crucial for India as it delivers nearly 70% of annual rainfall to India, making it important for farming activities. This augurs well for companies that sell goods in rural markets.

“Overall rural is not really growing for us; somewhere last year's El Nino effect is still around. However, expectations of a normal monsoon will translate into better output for rural markets and the agriculture sector," said Krishnarao Buddha, senior category head at Parle Products.

“Additionally, formation of the new government and the following full-year budget announcement will give some clarity and ensure funds start flowing into the market," he added. "While it may not happen overnight, at least the process will begin. Higher disposable incomes coupled with the better monsoon can help revive rural demand later this year."

To be sure, 2023 was a year of “divergent" consumption trends, with rural and bottom-of-the pyramid facing headwinds which showed up in muted growth in staple volumes, a sharp contrast to high-ticket and urban-skewed categories such as travel, high-end cars, and luxury watches, analysts at Jefferies wrote in a note.

Additionally, high inflation over the last two years has significantly affected consumption, especially in the mass segment. Fast-moving consumer goods products have the highest penetration in rural areas and have been impacted the most compared to other consumer baskets. 

The mass segment has a large user base, but the income growth is the slowest, analysts at Motilal Oswal said in an April report on the consumer goods sector. Volume growth for fast-moving consumer goods has “bottomed" out, and analysts at the brokerage anticipate a steady improvement over FY25 and FY26.

Companies are set to announce their March-quarter earnings later this month.

For now, analysts expect demand trends in January-March of FY24 to remain “broadly similar" to the last few quarters, with subdued operating environment and volume traction at an overall level, analysts at Jefferies said in a note earlier this week.

Meanwhile, packaged consumer goods maker Tata Consumer Products said demand trends are better compared to 18-24 months ago. 

“If I rewind to the end of calendar year 2022, we were pushing water up the hill. Now, there is a push, but it is not as much uphill, and you can see it is progressively getting better. I would remain optimistic about volume growth coming back within the next three to six months," said Sunil D’Souza, managing director and CEO, TCPL.

However, executives within the more discretionary apparel industry remain less optimistic.

“Retail has been challenging in FY24—for us it was good because we still grew. It’s not been a great year for fashion overall," said Nitin Chhabra, CEO, Ace Turtle, the exclusive licensee for brands such as Lee, Wrangler, Dockers, Toys“R"Us and Babies“R"Us in India.

“What seems to be happening is that the share of wallet seems to have moved to other industries such as travel and beauty, etc. Those categories are doing well. As a result, retail is struggling," Chhabra said. “We expect this to continue for another 12 months."