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New Delhi: September quarter earnings of fast moving consumer goods companies helped to zoom in on the demand environment in rural markets that remains squeezed due to high inflation.

Most companies flagged a sluggish rural demand in the September quarter that impacted their quarterly volumes. However, most expect some form of recovery in demand in the second half of the financial year.

Commenting on demand in rural and urban markets, Parachute oil maker Marico Ltd., said that divergence in rural and urban growth grew starker with the former reeling under persistent inflationary and liquidity pressures during the quarter. For the September quarter, the company reported 3% year-on-year growth in domestic volumes.

Late last month, homegrown FMCG company Dabur said that the economic environment continued to be “challenging"; this impacted purchasing power. “The impact of inflationary pressures was more pronounced in the rural markets with demand growth in hinterland lagging urban markets for the first time in five quarters. However, we are hopeful of rural demand reporting a smart recovery in the coming quarters and we are investing ahead of the curve to ride this demand recovery by expanding our rural footprint by adding nearly 9,000 villages in Q2 of 2022-23 to take our total coverage to over 100,000 villages," Dabur India’s chief executive officer Mohit Malhotra said.

Meanwhile, the country’s largest packaged consumer goods company said high inflation is impacting rural demand more compared to urban. “And that inflation impact is seen in volume decline in the market in rural and hence overall value growth of rural continues to be muted. So, that spins out. Of course, as far as Hindustan Unilever is concerned, we have gained comprehensively market share both in urban and rural, but overall, growth will be determined by what happens in terms of the market," Ritesh Tiwari, the company’s CFO said during a post-earnings call on 21 October.

Overall for the FMCG markets, volumes continue to decline in both urban and rural markets with a more pronounced drop in rural, the company added. HUL reported 4% year-on-year growth in volumes in the September quarter.

Tiwari said that as the broader basket of commodities cool down, the way vegetable oil has, that should help prices to come down. “And if that helps the prices to come down, that will augur well as far as consumption is concerned," Tiwari added.

Meanwhile, both Marico and HUL said they are hopeful of recovery in the coming quarter.

“The good news is urban employment is increasing, which would mean that rural migration and non-farm income will increase and hence giving money back to the rural area and hence having more money in the pockets in rural economy - that augurs well," Tiwari added.

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