FMCG sector to get a boost from recovery in rural demand, global factors: Centrum
Sep 17, 2024
New Delhi [India], September 17 : The FMCG sector is likely to see a boost in the coming months because of favourable global factors and domestic revival at play, highlighted a report by Centrum Institutional Research.
As per the report, the sector is expected to witness a boost, especially from a recovery in rural demand. The report mentioned that there has been a downward trend in rural inflation, along with a gradual rise in real wages in rural areas.
The above-normal monsoon and an increase in minimum support prices (MSPs), particularly for pulses are expected to further aid the sector.
The report stated that the food companies are expected to perform well, while the home and personal care (HPC) segment may experience slower growth due to a more gradual pace of premiumization.
"With favourable global factors and domestic revival at play, the sector may draw investors' attention driven by volume recovery in rural. We point out few demand drivers, downward trend in rural inflation, gradual increase in real wages in rural, above normal monsoon, and rise in MSPs especially for pulses" said the report.
Over the past four years, the FMCG sector has faced challenges, primarily due to the prolonged effects of the COVID-19 pandemic and unprecedented inflation. The rural market, which accounts for 52 per cent of the sector's volume, has been particularly impacted by lower real wage income and inflation. However, it is now starting to recover.
The report noted that between FY04 and FY24, rural volumes grew at a compound annual growth rate (CAGR) of 3.4 per cent, outpacing urban areas, which grew at a CAGR of 2.8 per cent.
As the rural economy begins to pick up, the report also mentioned that the staple companies are likely to focus on driving top-line growth through increased volume. Additionally, many emerging FMCG categories still have lower penetration in rural areas, offering significant potential for growth.
With the positive momentum in the rural market, the report added that major players can capitalize on this opportunity by expanding their distribution networks and increasing direct reach.
"The FMCG sector has checked low single-digit volume growth over the past two decades, which is primarily driven by 2.3% population growth, though additional growth has come from increased penetration. While past growth has been driven by penetration and distribution expansion, this decade may should pivot towards premiumisation and innovation," said the report
