Consumer goods sector faces a muted quarter as urban demand stays sluggish

Growth in India’s consumer goods sector is expected to remain weak for the October-December 2024 quarter, according to a report by Mirae Asset Sharekhan. The slowdown is driven by sluggish urban demand, a gradual recovery in rural demand, and price hikes across product categories.

 

The report highlights a continued drop in urban consumption, impacted by high inflation and fewer job opportunities. On the other hand, rural growth has outpaced urban growth, aided by better monsoon conditions and improved agricultural output.

 

Despite these challenges, revenues for tracked companies are projected to grow 6 per cent year-on-year, primarily driven by price increases, while volume growth will stay in the low single digits. However, profit after tax is expected to decline by 7 per cent due to muted revenue growth and shrinking margins.

 

Margins under pressure

Key factors impacting margins include high raw material costs, increased advertising expenses, and weaker operating leverage. Gross margins are under pressure, particularly in categories affected by elevated commodity prices.

 

The report anticipates that rural demand will remain stronger than urban demand for another quarter, boosted by stable agri-inflation and better crop production. In the short term, revenue growth will rely on a mix of volume and price increases, but profit growth may lag.

 

Financial services outlook

The financial sector is also expected to face sluggish growth. Loan growth for non-banking financial companies (NBFCs) remains subdued, particularly in unsecured personal loans and microfinance segments. While demand for commercial vehicles remains low, passenger vehicles, tractors, and used vehicles are showing signs of recovery.

 

Net interest margins for NBFCs are expected to vary, while credit costs are predicted to remain high. For insurers, despite regulatory changes, annual premium equivalent (APE) growth is projected to remain healthy.