The prediction of a normal monsoon for the fifth consecutive year by the Indian Meteorological Department (IMD) on Tuesday has eased worries over agricultural production, and therefore, rural demand.
Over a third of fast moving consumer goods (FMCG) sales in India come from rural areas. While the share of rural sales in passenger cars and two-wheelers is over 20% and 50% respectively. While tractor majors depend completely on rural areas for their sales.
Speaking to FE, Mohit Malhotra, chief executive officer, Dabur India, said: “The forecast of a normal monsoon by the IMD is certainly good news for the FMCG sector. While our Q4 update had indicated last week that there was some softness in rural areas, the last ten days of April have seen improvement in rural sales for Dabur. By the time the rains set in, the situation should get better.
“Rural sales are an important component of the passenger vehicle industry. They are around 30% of the volumes and for Maruti Suzuki, it is 44%,” Shashank Srivastava, senior executive officer for marketing and sales at Maruti Suzuki, India’s largest car maker, said.
“Any factor which impacts negatively impacts rural sentiment impacts the overall market. A below-normal monsoon is one such factor. It comes as a relief that monsoons are expected to be normal,” he said.
Typically, with a normal monsoon, rural incomes improve, which helps to purchase power. The IMD said on Tuesday that the rainfall during the June-September period would be likely 96% of the long-term average, with an error margin of 5% of the long-period average. This was, in contrast, to private forecaster Skymet, who, on Monday had said that India would see a below-normal monsoon rain this year, citing the threat of El Nino.
While the El Nino impact could be felt in the second half of the monsoon season, the IMD said that all El Nino years were not bad monsoon years. “This is certainly a big relief for FMCG companies,” Mayank Shah, senior category head, Parle Products, said.
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“The contribution of rural sales to the turnover of food companies is actually higher than the industry average. It stands at about 40-45% of total sales, which only drives home the point of the importance of rural sales to food and FMCG companies. A normal monsoon this year should aid rural revival, which is a good sign,” Shah said.
Data by retail intelligence platform Bizom for Q4 of FY23 had indicated that rural growth for the FMCG sector was ahead of urban growth by a wide margin. It stood at 16.8% for Q4 versus 7.9%, which was urban growth. Q4 was also the quarter, Bizom said, which saw a strong rural revival after months of stress in rural areas, due to inflationary pressures.
“El Nino is expected to have extensive ramifications, particularly in rural areas that rely heavily on agriculture. Nevertheless, based on the recent predictions by IMD, it is anticipated that this year’s monsoons will be normal…we continue to remain vigilant, carefully monitoring market dynamics,” said Yogesh Mathur, head of sales and marketing, Honda Motorcycle & Scooter India.
Sachin Bobade, vice-president, research at Mumbai-based brokerage Dolat Capital said, the prediction of a normal monsoon would see the FMCG sector recover fully by the October-December period, which is the crucial festive period in India.
“By then, rural incomes will improve on the back of a normal monsoon. This should aid consumption going into the festive season,” he said.