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The early onset of the south-west monsoon has raised hopes among fast moving consumer goods (FMCG) companies. They believe it would help take up rural consumption and improve the general sentiment, which has been low due to sustained inflation.
"The pace of rural sales growth will certainly improve if the monsoon remains the way it is," says Adi Godrej, chairman of Godrej Group, who is also the president of the Confederation of Indian Industry (CII).
A third of sales
FMCG companies derive almost a third of their sales from rural areas. Most firms have been looking to take this figure up to 40-45 per cent and believe that monsoons can play a critical role since they are vital for Indian farmers who depend on it for sowing crops such as rice.
India Meteorological Department (IMD) said today that the southwest monsoon this year is expected to cover 90-95 per cent of the country by the month-end.
A just-released report from Fitch group company India Ratings & Research says that a normal monsoon will potentially boost rural consumption from the third quarter of the current financial year.
"Given the current low base, this may add 1 to 2 percentage points to private consumption," says Deep Mukherjee, analyst at India Ratings & Research.
He says the rate of growth of domestic private consumption has been at its lowest at 3.68 per cent in 34 quarters, which is becoming a well-entrenched trend.
A normal monsoon should help reverse the trend to a certain extent, thanks to the optimism that it brings among consumers. This, in turn, will also help companies get bolder at a time when many have had to truncate their plans due to the general economic sentiment, says C K Ranganathan, chairman and managing director of Cavincare.
"Shampoos as a category, for instance, has been growing in single digits in the last few months. With good monsoons, rural consumers will be in a better position to spend. This will also embolden companies to bring out new products and possibly even tweak with pricing since they have the comfort that consumers are in a position to buy."
According to analysts, most consumer companies keenly track the monsoon to determine whether they can consider raising product prices at the end of it.
N Krishna Mohan, CEO (sales, supply chain and human capital) at Kolkata-based Emami, says his company has not taken a call on raising product prices as yet. "The monsoon is still at an early stage. We will wait and see how the season pans out."
