With a good monsoon on the cards, leading domestic FMCG players expect a pick-up in rural demand and a dip in input costs.
The India Meteorological Department (IMD) has forecast a normal monsoon this year, in contrast with the previous year. While many parts of the country were reeling under drought last year, others were flooded due to copious rainfall.
"We are expecting a good monsoon this year. The rabi and wheat crops are turning out to be very good. I therefore hope that food inflation will be contained, and expect FMCG demand growth to accelerate further," Godrej Group chairman Adi Godrej told PTI.
Expressing similar views, Dabur India Ltd executive director (supply chain) Jude Magima said: "The monsoon would play an important role in terms of easing raw material inflation as well as boosting demand, particularly in rural India."
He said Dabur had posted strong double-digit growth in the last fiscal despite the drought.
"We are confident that good monsoon this year will further fuel this growth," Magima added.
Industry analysts said that agriculture-based FMCG firms like Dabur, HUL and Nestle were likely to benefit the most from a good monsoon.
"We believe the growth of the FMCG sector can accelerate significantly from the second half of the fiscal... We note that the probability of the monsoon being normal is high," a report from Motilal Oswal Securities said.
The report said that the prices of milk, sugar, wheat and rice would moderate, thereby easing food inflation and increasing consumer demand.
However, they insisted that it was too early to say if they would cut product prices in view of lower input costs.
"Though it is too early to predict, a good monsoon would definitely ease surging input costs," Emami director Aditya Agarwal said.
According to industry body Ficci, India's Fast Moving Consumer Goods (FMCG) sector has grown consistently over the last three to four years, and is pegged to touch $43 billion (Rs 206,000 crore) through retail sales by 2013 as compared to $25 billion (Rs 120,000 crore) in 2008.