Recovery in sight for FMCG in 2020

Chennai: The fast moving consumer goods (FMCG) sector is expected to grow in the 8-10 per cent range this year and make some recovery in the next year. Market watchers expect that an improvement in rural demand would aid the segment’s recovery.

Crisil expects nearly 400 basis points moderation in growth to an estimated 8-9 per cent is likely in financial year 2020. An expected recovery in rural demand, coupled with steady urban demand, is set to lift revenue growth of FMCG sector to 10-11 per cent in FY21, close to the levels witnessed in FY19.

Nielsen expects the sector to remain 'stable' in calendar year 2020 with a growth of around 9 to 10 per cent. "2019 has been a tough year for the FMCG industry with over four point decline, but we do see it stabilising in the last quarter of the year... However, 2020 offers a stable outlook for the industry arresting the 2019 decline," Nielsen Global Connect South Asia zone president Prasun Basu said.

In the December quarter of 2019, the FMCG sector reported a sales growth of 6.6 per cent and it was 7.3 per cent with the inclusion of e-commerce channels, which according to Nielsen indicates an "arrest" against the sharp slowdown witnessed in the previous quarters. It was led by the rural market, the demand of which slipped to nearly half from the previous year levels.

Rural demand, which accounts for just under a half to the sector’s revenue, slowed down sharply in the first half of current fiscal, following lower crop production and moderation in agriculture GDP to 2 per cent, finds Crisil.

However, the rating agency finds that rural demand is expected to recover gradually from March-April 2020, riding on an increase in farm incomes. Better storage levels in reservoirs after a good monsoon, better rabi output and good visibility for the upcoming crop seasons will support this.

Among other factors, the third and final tranches of the Pradhan Mantri Kisan Yojana is likely to be released, pumping in $1.7 billion into the economy.