NEW DELHI: India’s robust fast moving consumer goods (FMCG) market is set to slow down as consumers turn frugal, though analysts believe growth would remain in double digits.
According to market research firm Nielsen, the FMCG sector is likely to grow between 11-12 per cent in 2019 as opposed to 13.8 per cent growth seen a year ago.
“Historically, growth rates in election years have always been a tad lower than other years for the FMCG sector. Besides, factors like rising input costs and inflation may also have an impact on overall growth rates for the industry,” said Sameer Shukla, executive director of Nielsen India.
Usually, sales of big-ticket consumer durables like cars and white goods slow down in periods of slower economic growth, while the $57 billion FMCG sector remains virtually recession-proof, with firms continuing to make money even during a downturn. India’s GDP growth slowed down to 6.6 per cent in the last quarter ended December, while industrial production grew by just 1.7 per cent in January.
Interestingly, the FMCG sector witnessed a stellar growth in 2018 — the highest in a decade —driven largely by volumes. Out of the overall growth of 13.8 per cent, about 10.7 per cent was driven by consumption (volume), while the remaining was price-led growth. This year, however, Nielsen believes that overall growth rate may taper down to high single-digits in the second half of the year, while the first half is set to witness a double-digit growth.
Analysts at Edelweiss Securities concur. The fourth quarter of the fiscal will see revenue and net profit growth of companies at 8.7 per cent and 9.2 per cent respectively, far lower than 14.3 per cent and 14.8 per cent year-on-year growth reported in the third quarter ended December. Company-wise, Bajaj Corp’s quarterly growth would be slower at 5.5 per cent in Q4FY19 compared to 7 per cent in Q3FY19. Colgate is expected to be down from 7 per cent in Q3 to 5 per cent in Q4. Domestic volume growth of Dabur is also likely to fall from 12.4 per cent to 4.5 per cent, Emami from 3 per cent to 2 per cent and Hindustan Unilever from 10 per cent to 6 per cent.
"Reasons for this transitional slowdown in demand are many. Faltering rural wage growth and the consequent slowdown in the economy are majorly being blamed. That apart, tight liquidity is also pinching wholesalers and dealers, who are unable to stock afresh. Some decline in demand has also been because of a long winter that delayed the offtake for summer products, coupled with limited payouts of PM-KISAN scheme," said Abneesh Roy, senior vice-president, Institutional Equities, Edelweiss Securities.
Reports suggest that only 47.4 million of the 120 million-odd small and marginal farmers were registered before the Model Code of Conduct for general election came into effect.
A recent forecast of a below-normal monsoon this year by Skymet Weather Services could also compound the woes of FMCG firms.
“Weak monsoons could impact discretionary spending and if that happens, we can expect some consumption stress in May and June,” said Dabur India chief executive Sunil Duggal.
As far as valuations are concerned, stocks of consumer goods have remained high so far. The Q4 results, however, could offer investors a reality check. The hope, of course, is that the situation will improve after the general election results are out, when a new government takes charge.
Major impediments
Faltering rural wage growth and the consequent slowdown in the economy are majorly being blamed for the slowdown in FMCG sector.