Moneycontrol Pro Panorama | A boost for consumption

Signs of consumer demand is picking up.

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This week brought with it signs of the long-awaited uptick in rural demand. A Nielsen IQ report said sales volumes for fast moving consumer goods (FMCG) companies rose by 6.5 percent in the March quarter from a year ago, and even outpaced urban sales growth, which has been hobbled by increased competition.

The March quarter results of FMCG companies bear out the optimism. Analyses of FMCG companies by our independent research team say rural growth will outpace urban in the second half of the fiscal year for GodrejConsumer Products; that Marico’s results show a rise in rural demand; that Britannia’s volume growth will grow in the double digits in FY25.

Nor is the rise in demand limited to consumer staples—auto sales numbers also bear out this trend. Two-wheeler registrations were up 33 percent year-on-year in April while retail sales of passenger vehicles were up 16 percent from a year ago. My colleague Nitin Agarwal, writing on Hero MotoCorp’s Q4 results, said, “The company is seeing a surge in demand, particularly in rural areas, supported by the combination of renewed consumer interest and the introduction of new models in the premium segment.” As for TVS Motors, the management has said demand in urban areas continues to be strong and demand from rural areas is picking up.

We’d also like to take this opportunity to point out that we had speculated, presciently as it turns out, about the improvement in rural demand on the basis of a rise in rural wages and a fall in demand for the rural employment guarantee scheme, at the beginning of April in this piece.

To be sure, much still depends on the monsoons and there may be other reasons why FMCG stocks have staged a rally recently.

But it can’t be denied that, at last, there are signs that consumer demand is picking up. The RBI’s latest Consumer Confidence Survey said, “Consumer confidence for the year ahead improved further on the back of higher optimism in all CCS parameters; higher optimism resulted in the future expectations index (FEI) rising further by 2.1 points to 125.2 – also its highest level since mid-2019.”

Ever since the GDP data showed that private consumption expenditure had grown by a meagre 2.4 percent year-on-year in the September 2023 quarter and by a sedate 3.5 percent in the December 2023 quarter, there has been much concern about the prospects of consumption growth. One interpretation was that consumption growth was hampered by the K-shaped nature of the recovery, with the K-shape validated by the trend towards premiumisation seen in consumer goods ranging from autos to staples to alcohol. The other, more consoling, interpretation was that, thanks to the government’s focus on building infrastructure and the revival in the real estate sector, it was a matter of time before the jobs for the masses in these sectors led to higher consumption demand. It is this second interpretation that now seems to have more weight.

The increase in consumption is important for another reason — It will induce the firms that are currently sitting on the fence as far as increasing investment is concerned to go in for capex. This will further strengthen investment demand.

The only concern is external demand. However, the IMF has in its latest World Economic Outlook, said world trade volume will pick up to 3 percent in 2024, from 0.3 percent last year. For emerging and developing economies, export volumes are forecast to increase by 3.7 percent, compared to -0.1 percent in 2023. The World Trade Organisation too has predicted a jump in trade this year.

Simply put, for the first time in several years, all three engines of the Indian economy—investment, consumption and exports—show signs of picking up. That hope underpins the optimism in the equity markets.

Investing insights from our research team

Larsen & Toubro: Growth moderation in near term

TVS FY24: Strong fiscal, valuation at elevated levels

Hero MotoCorp Q4 FY24: Rich product mix augurs well

Pidilite Q4: Encouraging volume trends

Gujarat Gas: Good performance; should you buy it now?

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Apple’s tone-deaf iPad ad triggers our darkest AI fears

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Personal Finance

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Tech and Startups

IndiaAI gathers steam: Govt to soon launch National Center for AI, request for proposal for GPU infra

Markets

Bearish inter market divergence across indices signals caution in short term

Technical Picks: SBI, Tata Investment, SUN TV and Manappuram Finance (These are published every trading day before markets open and can be read on the app).

Manas Chakravarty Moneycontrol Pro