How recovery in rural India could help you

Companies are commenting positively on prospects for future sales in rural India.
How recovery in rural India could help you

The underperformance of the consumer sector in India tells a story. Over the past five years, the BSE fast-moving consumer goods index has underperformed the BSE Sensex by a margin. Over the years, India’s consumer sector has been the pillar of growth. However, the COVID-19 pandemic, inflation and little or no wage growth stalled the march.

Much campaigning focused on the rural distress during the run-up to the election. The opposition parties in India have been highlighting it in every political rally. If you are a regular reader of quarterly financial data, you would have noticed that companies in the consumer sector have flagged the rural consumption weakness every quarter.

Many companies have announced quarterly results and continue to brief the market on the situation. In the latest quarterly filings, there are signs of a turnaround. Companies are commenting positively on prospects for future sales in rural India.

For example, Asian Paints, the largest paints company, relies on rural recovery and has said that rural markets are responding better than before in the latest quarter. While the urban market is growing strong, the company hopes the recovery in rural India will push up sales in the coming quarters.

TVS Motor, a two-wheeler sales company, hopes to recover better from rural markets in 2024-25. Hero Motocorp, a larger rival of TVS Motor, told analysts there was a jump in first-time buyers across urban and rural Indian markets.

Two-wheeler sales are considered necessary and discretionary spending in rural India. It is believed that when people buy their first two-wheelers, they foresee better prospects ahead. Since the pandemic, the industry has struggled to sell in the rural markets. The cost of making two-wheelers rose due to high input prices. At the same time, rural consumers can’t pay the higher price passed on to them. As a result, there was a lull in the segment.

In the consumer sector, companies like Bajaj Consumer said that the optimism in 2024-25 is due to factors like above-normal monsoon expectations, favourable macroeconomic conditions and an explicit green shoot in rural demand. Companies like Marico, which sells Parachute hair oil and other products, focused on building their rural distribution network during the lull period. They are also noticing an uptick in rural growth.

A foreign brokerage, UBS, recently noted in a consumer sector note that normal monsoons, removal of export banks on agricultural commodities, and capital expenditure are likely to boost rural consumption. Government spending on rural infrastructure will likely continue, and jobs outside the agriculture sector will be supported.

What does it mean to you

Global institutions like the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development, or OECD have revised India’s growth upwards. The commentary from companies that sell goods and services to rural India indicates signs of a turnaround in the rural economy. In 2024, India’s benchmark indices, like the Nifty and the Sensex, have barely moved. Amidst the election season, large institutional investors take the money off the table until we know the nature of the next government. The stock market loathes uncertainty. That leads to rising volatility in the market. As India votes and trends emerge, the year’s second half will give a clear picture.

However, as individuals who are not actively trading or investing, you must take a long-term perspective. The long-term growth prospects for India are good even if there are changes in the government. That helps businesses consistently generate growth and profits. If companies see better prospects for rural India, you should ensure that you are in it to benefit from the growth in rural consumption. There are multiple ways you can participate. You must engage a professional financial advisor to discuss the way forward. Stock market investing is about giving your money the time to grow. As businesses in the consumer sector recover from the depths of the pandemic, there could be a tailwind of growth in rural consumption. You may not want to miss that.

Rajas Kelkar

(The author is editor-in-chief at www.moneyminute.in)

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The New Indian Express
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