Normal monsoon predictions are raising hopes of consumption uptick

Companies expect higher sales with revival of rural economy in the offing

Predictions of a normal monsoon are raising hopes of consumption uptick among consumer goods players in the country. With the chances of revival in rural consumption brightening, the sector is looking at higher sales in 2018-19.

While a harsh summer has the potential to boost sales of cold beverages, ice creams, air conditioners, and refrigerators, a normal monsoon augurs well for washing machine manufacturers. Further, optimum level of precipitation increases prospects of a better harvest. This lifts the purchasing power of rural households during the festive season – starting late September.

Ratings agency CRISIL said, “It is crucial to push economic growth, which slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the goods and services tax, both of which impacted private consumption demand as well as exports.”

"A normal monsoon will augur well for the rural economy as it will positively impact productivity thereby leading to enhanced income for farmers. This will lead to an increase in rural demand and spur consumption of fast moving consumer goods," said an ITC spokesperson. 

According to Lalit Malik, chief financial officer of Dabur India, a normal monsoon should boost consumer sentiment and demand growth in the hinterlands. He said: “The government’s rural focus, particularly the decision to hike MSPs (minimum support price), will aid the positive sentiment and drive consumerism as it will put more income in the pockets of farmers”.

Madan Pandey, president of sales at Emami, said: “Half of Emami’s business comes from rural markets and monsoon has a direct bearing on income and demand. The firm looks at rural India as the next growth avenue and has been building its infrastructure by investing in logistics, team, setting up distribution reach up to 3,000 population villages, and technological support for real-time sales tracking. With a normal monsoon on the horizon, Emami is targeting high double-digit growth from the rural market”.

While, since 2015, average growth rate for the agriculture sector has remained below 2 percent, CRISIL predicts growth rate may remain at 3 percent in 2018-19.

Being a pre-election year, hike in MSP rates will aid consumption growth during the second half of 2018-19, said Abneesh Roy, senior vice-president at Edelweiss Securities.

This is raising hope for consumer durable makers that usually garner over 40 percent of their annual sales during the festive season. Major players are hoping to grow their top lines by 15 to 40 per cent. “Harsh summer and normal monsoon, both coming together is better for business. We hope to grow by 15 per cent and aim to increase our market share to 12.5 per cent from 11.5 per cent now,” said B Thiagaranjan, joint managing director of Blue Star.

Kanwal Jeet Jawa, managing director, Daikin India, expects the air conditioner (AC) market to grow by 15 per cent this year. “We hope to grow at a rate higher than what we did last year,” he added.

According to Manish Sharma, president and chief executive officer of Panasonic India and South Asia, onset of early summer has spiked sales of ACs. He is planning to grow by 15 per cent this summer. 

Despite two rounds of price hikes since last October, consumer durable firms are contemplating further hikes as costlier raw materials are putting pressure on their margins. Sources said once sales picked up companies would pass on the additional cost.