Earnings of fast moving consumer goods (FMCG)companies in the June quarter quarter is a clear reflection of this sentiment as most the players in this space have disappointed street estimates.
Though it is seen as one of the bright spots in the global economy, India's consumer confidence as measured by a Nielsen index has dipped. India has ceded the top slot to Philippines in the June quarter, after having topped the list in the March quarter.
The index measures perceptions of local job prospects, personal finances and immediate-spending intentions in a country to calculate the confidence consumer index. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.
Two back to back droughts did hit the rural demand scenario while at the same time the urban demand did not see much pick up either.
“In India, the dip in the index in the second quarter hints at caution for consumers, with the hardening of fuel prices, rising inflation and concerns around the monsoon,” the report said.
These factors have bred a cautionary sentiment in the Indian consumer which has led to more savings against discretionary spending.
Earnings of fast moving consumer goods (FMCG) companies in this quarter is a clear reflection of this sentiment as most the players in this space have disappointed street estimates.
FMCG big shots like HUL, ITC, Dabur and Godrej Consumer, all reported disappointing set of first quarter earnings which signifies that consumer firms and the staples industry is facing a slowdown as the Indian consumption story fades due to lack of macro stimulus.
In an interview with CNBC-TV18, Varun Lohchab had said, "Industry volumes have been slowing down. Lever (HUL) feels the heat more due to competition from small players. But most of the FMCG stocks are fully valued and given the earnings outlook, they will be pressured."
NOT ALL HOPE IS LOST
Given the recent reforms that have been passed by the government and a good monsoon this year the demand is likely to pick up from where it left.
"However, the Indian consumer has remained quite optimistic over the last few quarters, and this may be just a temporary dip,” the Nielsen report said.
-Implementation of the seventh pay commission should boost the consumption story in India.
-The passage of the goods and services tax (GST) bill will have a temporary impact on inflation post its implementation its long term gains will overshadow the immediate inflationary impact it brings.
According to a Credit Suisse report, GST will have a major impact on consumer stocks.
"We expect full excise paying companies such as HUL, Colgate and GSK to gain as indirect taxation for them could come down from the current 24-26 percent to 17-19 percent. Companies with exemptions could see margin gains from service tax offsets. Paints and appliances currently bear a high indirect taxation of 24-25 percent, which could substantially reduce under GST to 17-19 percent. This will help gain share from the unorganised sector," the CS report said.
-The onset of a good monsoon this year is expected to revive the ailing rural economy and improve the urban demand as well.
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