Rural demand may rebound in the second half of this fiscal year as bountiful monsoon rain, high food prices and a spike in remittances from migrant workers before the festival season boost incomes, said a Mint report quoting companies and analysts.
“We have started seeing early signs of revival,” Mint quoted Mayank Shah, senior product category manager at biscuit maker Parle Products, saying so. “Hopefully, with good monsoon predicted this year and higher realization price of crops like wheat, we expect good demand from the September quarter.”
A rise in incomes of farmers and rural households is good news for packaged goods companies, appliance makers, and two-wheeler and tractor manufacturers, which have seen demand drop as price hikes to offset inflationary pressures resulted in a sharp cutback in consumption. Many companies affected several rounds of price increases since the Russian invasion of Ukraine in February led to soaring energy and raw material costs, the report further added.
MInt report highlighted that rural markets reported a 5.3% decline in sales volume in the March quarter, the steepest in the past nine months, while urban volumes dipped by 3.2%, market researcher Nielsen IQ said in its March quarter update on the packaged consumer goods sector. NielsenIQ pointed to sharp price increases on packaged goods leading to a steep consumption decline in the countryside.
Analysts at Edelweiss Securities said rural demand would start improving from the December quarter.
“In our view, the (rural) slowdown will persist well into the fiscal first half, stemming predominantly from unprecedented inflation, compelling steep price hikes from fast-moving consumer goods companies, and consumers prioritizing savings over spending, given the all-round inflation. We believe the second half of the fiscal year is when green shoots will begin appearing,” they said, as per Mint.
Brokerage firm Prabhudas Lilladher is of the view that while Russia Ukraine war will increase inflation, there could be a silver lining for rural India given: (1) ₹500-600 billion additional profits from rabi crop in wheat, mustard, etc., and (2) likely gains of ₹1,000-1,500 billion for the dairy farming sector.
"We believe the bottom end of the pyramid has been protected from inflation significantly by PM Garib Kalyan Yojana (free rice/wheat/pulses/edible oil, etc.) will protect the downside," said Amnish Aggarwal, Director - Research of Institutional Equities at Prabhudas Lilladher.
Normal monsoon and weak fourth Covid wave will increase consumer confidence and boost rural demand.