Jefferies anticipates rural recovery in 2024 despite challenges

A significant increase in new home construction and higher private investment is expected to create more job opportunities in the rural areas.

India's recovery from COVID appears to have favoured urban areas, with rural recovery lagging, said Jefferies in a recent report. However, a significant increase in new home construction and higher private investment is expected to create more job opportunities in the rural areas. Additionally, the government's focus on welfare spending could boost investor confidence, according to the report.

Jefferies projects consumer staples such as GCPL and Marico for potential gains in this recovery.

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The report noted that in the FMCG and staple goods sector, smaller businesses are gaining market share, indicating increased demand at the lower end. The Jefferies India Strategy Report emphasises consumer staple and certain discretionary stocks, particularly in the automotive sector, with a significant share of sales in rural areas. In the consumer sector, GCPL and Marico are their preferred choices.

In 2023, the rural and agricultural sectors received support through increased farm purchase prices, reaching a five-year high for rice and wheat crops. Looking ahead to 2024, being a national election year, historical patterns indicate a focus on significant schemes benefiting the rural and economically weaker sections. Jefferies stated that before the 2019 elections, the Modi government introduced the Rs 800-billion minimum basic income scheme for small farmers. The 2023 state elections also demonstrated the BJP's willingness to implement substantial income transfer programmes, including monthly transfers for women and landless laborers.

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Rural importance

India’s packaged consumer goods companies reported robust urban growth in the September quarter, marked by a consumer preference for premium products, while demand in rural markets remained subdued. A recovery in rural regions is important for FMCG firms, as it constitutes more than one-third of their overall sales.

Although the first quarter of FY24 faced challenges with untimely rains, the second quarter experienced irregular rainfall and pressures from food inflation. Marico reported issues such as increasing food prices and irregular rainfall in some areas hindered the expected recovery in rural demand. Dabur India noted year-on-year improvement in FMCG consumption but highlighted weather uncertainties affecting rural demand.

Nestle India is enhancing its presence in rural areas through effective distribution and marketing efforts, distinguishing itself from other FMCG companies facing sluggish rural recovery.

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