The FMCG Industry Is Anticipated To See A Surge In Consumerism By The Last Quarter Of 2023

Relaxation In Prices Of Commodities Along With Softening Inflation To Boost FMCG Company's Q4 Earnings

Fast-moving consumer goods (FMCG) businesses will likely report strong growth in revenue, backed by lowering prices of commodities, easing inflation and price cuts implemented by the market players.

According to a report, it was estimated that the FMCG sector would witness a growth in revenue of 9.8% year-on-year in the final quarter of FY23 as a mixed result of volume and pricing. As per analysts, the expected sales aggregate is for the industry to develop at 10.4% on the year, with a steady recovery in volumes for the FMCG sector. They also anticipate achieving a profit increase of 14.4% over the year-ago quarter following tax cuts.

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With prices of major commodities softening, FMCG companies noticed price slashes and grammage increases during the past six months. This will likely result in an uptick in volume in Q4 FY23. But the domestic demand situations are still soft in comparison to urban demand.

As per Analysts, the key raw material prices in the FMCG industry have lowered during the past six months, which will likely improve the FMCG company's gross margins. The average prices for palm, crude and coconut oil have remained low at 35%, 16.1% and 12.7%, respectively, in contrast to the corresponding quarter.

Signs Of Growth Emerge In Spite Of Close-Term Consumption Pressures

FMCG companies also hint at a steady demand improvement in the March quarter.

As a matter of fact, the coconut oil maker Parachute, Marico, for its latest quarter 4 update, stated that the FMCG sector is noticing steady recovery with gradual improvement in year-on-year volume trends every quarter. It emphasised that relaxing the prices of the commodity was a crucial factor that helped stimulate the industry's growth. But, the firm stressed that the usual monsoon would play a key role in the growth in future.

Whilst urban and premium sections remained steady, relaxing wider commodity inflation will be fruitful for the general consumption trends, specifically in rural markets. While a better perceptible and sustained revival in demand for FMCG is expected in the approaching quarters on the basis of various improved macro indicators, a restorative monsoon season will play a crucial role in the same to emerge.

Dabur India, maker of Hajmola, also hinted at improved demand across its markets.

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The demand trajectory across India's rural and urban markets showed a little improvement sequentially, even though it failed to make a complete recovery. Whilst urban markets yielded a positive volume growth, there was a muted sentiment in the rural markets.

In spite of the near-term consumption pressure, there is some glimmer of hope peeking, like easing inflation, positive consumer confidence as well as rising government expenditure.

Retail inflation in India dropped to 5.66% in March, a 15-month low, because of a reduction in the prices of food. The inflation number is also within 6%, the upper tolerance level of the Reserve Bank of India.

IMD’s Monsoon Projection Adds To The Confidence

According to the forecast by India's Meteorological Department (IMD), India will experience a normal monsoon in the present year in spite of developing situations in El Niño. This is another reason for celebration for the FMCG companies.

This forecast by IMD is a cause for celebration in the FMCG industry as it would help revive the rural region mainly since more than a third of FMCG sales in India is concentrated in these areas, and this would boost that development.

In India, millions of farmers rely on the monsoon season to sow their crops and make a living. It is directly connected to rural demand, which in turn impacts FMCG and auto sectors.

According to the article by Procurement Resource, the FMCG industry in India will likely see increased consumerism and profits during the final quarter of 2023. The main factors behind this shift include lowering prices of commodities, easing inflation and price cuts implemented by the market players. Besides that, a normal monsoon season expectancy has added to the good news for the sector that heavily relies on rural region sales for its profit. A stable monsoon season means that farmers will have a great yield and, thus, in turn, be profitable for the companies.