With the 3rd term of PM Modi, FMCG to see a scale of growth
As Modi takes charge for the 3rd term, the FMCG and consumption sectors should be on investors’ radar due to anticipated government policies to boost rural demand.
Increased government expenditure and beneficiary schemes are expected to benefit the underprivileged, positively impacting rural-oriented sectors like FMCG. Despite four years of normal rainfall, last year’s monsoon was below average, receiving only 94.4% of the Long Period Average (LPA). Irregularities included delayed onset and varied rainfall, with critical crop months like August receiving just 64% of LPA. The global El Niño phenomenon also caused severe heatwaves, reducing rainfall and raising temperatures, further affecting water reservoir levels. As of October 2023, water levels in 150 key reservoirs were 19% lower year-over-year, severely impacting the southern region. The rural economy has been under stress since the Covid-19 pandemic. Factors like disrupted incomes, reduced inter-state migration, high inflation, increased rural unemployment and a decline in agricultural activities have weakened rural demand over the past few years.
However, this trend will likely reverse in FY25 due to expected improvements in monsoon activities and government policies leaning toward populism. The Indian Meteorological Department (IMD) forecasts an above-normal monsoon (June to September 2024), with rainfall expected to be 106% ± 4% of the LPA. Weakening El Niño conditions, the likelihood of La Niña, and a positive Indian Ocean Dipole are expected to enhance the monsoon, benefiting kharif crop production, improving reservoir levels, and aiding food grain production. Increased production will boost farmers’ income, contain food inflation, and enhance rural cash flows. Despite the risks such as potential floods due to excessive rainfall, a gradual recovery in rural demand is anticipated, driven by declining inflation and strategic company initiatives. The new government is expected to adopt a more populist approach to address rural unrest, increasing expenditure and schemes for the underprivileged, thereby boosting rural demand and benefiting the FMCG and consumption sectors.
