Fast-Moving Consumer Goods (FMCG) and automobile players have said that with muted growth, the recovery in rural demand could take a year to come back.

“We are seeing a scenario where the rural growth is muted even with the recovery that has happened. We are still talking about rural volume growth at -3 per cent and if I look at the value growth for the entire year urban has been about 11 per cent of the market and rural has been just 4 per cent. Whenever inflation happens it bites the poor much more because, for them, FMCG share on the wallet is much higher as compared to people with higher disposable income,” said Sanjiv Mehta, Managing Director of Hindustan Unilever Ltd (HUL), at an earnings call.

“Given the context of no significant signs of rural recovery and key commodities remaining above pre-Covid levels, our outlook for staples companies remains neutral for FY24 (somewhat worrisome in the long-term as well). However, HUL is likely to be better off than peers as the salience to mast market products is relatively lower than peers,” said ICICI Securities.

Consumer downgrading

Companies have also pointed out that due to price inflation consumers have preferred to downgrade in the tea beverage category.

“Premium tea saw much higher inflation and players who make loose tea did not see that amount of inflation and saw price correction. Hence, the gap between premium and loose tea widened. this is why we saw consumers downgrading,” said Ritesh Tiwari, Chief Financial Officer and Executive Director, Finance & IT of Hindustan Unilever Ltd.

Tata Consumer Products said that the India-branded tea category saw muted growth, lower than its long-term average.

Green shoots

Despite the inflationary pressures, companies are optimistic about rural demand picking up with green shoots happening.

“Demand is coming back in India in places of stress. In the near term, we see a stable operating environment whether we see crude, currency, tea, or salt. I would take one quarter at a time and given the last year, we have learned to be agile. We are seeing inflation sort of starting to plateau in the near term,” said Sunil D’Souza, CEO and managing director of Tata Consumer Products.

The second largest two-wheeler maker Bajaj Auto is seeing a recovery of consumers opting for 100 cc segment motorcycles but anticipating an increase in the 125 cc segment due to minimal recovery.

“In the next year or so we will continue to see the lopsided distribution of the economic progress in favor of higher salaried classes which prefer the 125 cc segment. I see recovery but much lower for the 100 cc consumers. The 100 cc customers have recovered in a positive zone but only in a marginal way People are talking about GDP growth at 6-7 per cent, the real answer for a company like us whose 70 per cent of consumers earn less than ₹50,000 per month is about the quality of the distribution of the 6 per cent and this was severely lopsided when the recovery began at the start of the year but now we are seeing the recovery percolate to the bottom of the pyramid. we are seeing optimism of the continuation of service, and continuity of income which is resulting in better retail financing penetration,” said Rakesh Sharma, Executive Director of Bajaj Auto during the Q4 quarter results.