In a raging bull market, investors in FMCG companies have had little to cheer about. Food inflation, poor monsoons, stagnant wages, have all taken a toll on rural demand, and in turn, on the bottomlines of FMCG companies. That may be about to change.
Industry captains and analysts tracking the sector are hopeful that a humbling verdict for the NDA in the recent elections could result in a greater focus on the rural sector in the upcoming Budget.
Increased allocation for social sector spending and more welfare schemes could boost rural consumption and in the process, could change the game for FMCG companies, the market feels.
Budget wish list
Improving rural infrastructure, heightened rural connectivity and a thrust on capital expenditure are some of the measures seen boosting rural consumption.
“We expect a cyclical recovery in rural consumption in FY25E, largely led by higher allocations for social sector schemes in the upcoming union budget and based on recent states' budget and election promises, continued double-digit growth in public capex (to support rural jobs), normal monsoons and the likely removal of export bans on agricultural commodities,” said Tanvee Gupta Jain, Chief India Economist at UBS.
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Over the last year, many states have boosted their budgets for welfare programs. These include enhanced cash transfers to farmers, bonuses above MSP, and farm loan waivers, along with increased capital expenditure.
Incentives to increase domestic production of edible oil, pulses, vegetables, and fruits, expand dairy co-operatives, fisheries would bring down surging food inflation. It would also lower raw material costs for a lot of consumer staples, leading companies to enact price cuts without impacting margins, boosting demand.
The key beneficiaries of increased rural demand are expected to be blue-chip large-cap consumer staples players such as Dabur India, Hindustan Unilever, Nestle India or Godrej Consumer Products.
Beverage and discretionary categories, along with companies expanding their geographical footprints, are expected to outperform other FMCG peers. “From this perspective, we anticipate Nestle, Jyothy Labs, and VBL to lead the overall revenue growth for the sector,” said Axis Securities.
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