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Some FMCG players have begun seeing early signs of sequential improvement in rural demand trends in the June quarter. Hike in MSPs (Minimum Support Price), moderating inflation and hopes of near-normal monsoon areexpected to push rural demand revival in the coming months, players said. Softening raw material costs are also expected to help in gross margin expansion.
Early signs
Mayank Shah, Senior Category Head, Parle Products, said, “ We began seeing some early signs of rural demand revival by the end of March quarter and there has been a gradual pick-up in these trends in the June quarter. Demand revival starts with basic necessities demand and then moves on to discretionary spends. Good rabi crop and hike in MSPs are expected to put more money in the hands of rural consumers. Earlier there were concerns about monsoon but now one is seeing the onset of monsoonacross regions and hopefully rural demand revival will gain momentum in the coming quarters.”
“We have seen 8-9 per cent growth in terms of value and 2-3 per cent volume growth in rural markets in the June quarter compared to the same period last year,” he added.
In its quarterly update for June, Dabur India said“ During the quarter (Q1 FY24), trends in both urban and rural demand have shown signs of improvement. One of the key contributing factors to this positive development has been the reduction in inflation. Sequential improvement in inflation has positively impacted consumer spending power and is resulting in gradual improvement in offtakes in the industry.”
However, Marico, in its Q1 quarterly update, said the anticipated pick-up in rural demand remained “elusive” in the June quarter. But the FMCG company added that factors like moderating headline inflation, hike in MSPs, easing liquidity pressures and the forecast of near-normal monsoon continue to fuel hopes of a gradual recovery in rural demand in the course of the year.
In its Q1 preview report on the consumer sector, Nuvama Institutional Equities said,” rural demand has seen slight green shoots” but urban continues to outpace rural growth rates for most FMCG companies.
FMCG growth
A recent report from CRISIL Ratings projected that the FMCG sector will see 7-9 per cent growth in this fiscal. This will be supported by gradual recovery in rural demand and steady urban demand. It added that impact of El Niño conditions on rainfall pattern this monsoon remains monitorable.
“Demand from the rural segment began to recover in the last quarter of fiscal 2023 after being negative for six consecutive quarters. This was supported by growing rural income in the last two quarters, coupled with falling rural inflation levels. Demand recovery is expected to sustain this fiscal with continuing moderation in inflation, healthy hike in minimum support prices for key crops, and stable non-agricultural income indicators,” it added.
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