Consumer Stocks To End 2024 At A Loss — Demand Double Whammy At Play

Indian consumer stocks, once buoyed by hopes of recovery, are closing out the year on a sour note, with share prices sliding amid mounting concerns about a bleak outlook for the year ahead.

The gauge for Indian fast-moving consumer goods companies' stocks—NSE Nifty FMCG—has fallen by 0.85% so far this year, in what will perhaps be the first yearly decline since 2019. The benchmark index plunged by 9% in the first half only to decline further after a strong recovery.

The decline in the later part of the year was also in line with the broader stocks from global funds' exit from the domestic market.

The recovery was on the hopes of demand revival. The festive season also fell short of expectations with heavyweights like Hindustan Unilever Ltd. and Godrej Consumer Products Ltd. reporting mixed performances.

The Godrej Group company's stock nosedived by over 10% after it saw a mid-single-digit growth in organic sales in the October-December period. "The demand conditions in India have been subdued for the past few months which is evident in FMCG market growth," Godrej Consumer said in its quarterly update.

The late arrival of winter has also spooked the market, triggering industry leaders to embrace the pan-season sales tactic. This has delayed the offtake of winter-focused products, with improvement anticipated only in November, according to Antique Stock Broking.

Slowdown in urban demand triggered muted wage growth, higher interest rates and rising EMIs also contributed to muted performance.

In the first two quarterly earnings, lower volume growth was seen largely due to a rise in inflation and a weakening consumer demand due to broader macroeconomic headwinds, according to Prashanth Tapse, senior vice president for research at Mehta Equities Ltd.

Although market watchers expected consumption to hit rock bottom in the September quarter, "looks like we have not hit the bottom yet," Dinshaw Irani, the CEO and CIO of Helios Capital Management told NDTV Profit. Irani expects the rate cut cycle to begin early next year, paving the way for a gradual recovery.

“We are looking at mid-2025 for a full-fledged consumption revival. Until then, we should be prepared for muted growth,” he said.

The benchmark gauge is on course to post a decline in yearly growth after a strong 30% rally in the previous calendar year. The Nifty FMCG index has fallen marginally so far this year, while the benchmark Nifty 50 index is up 13.1%.

Since the beginning of the year, FMCG and consumer durable companies have been the only laggards in terms of contribution to the Nifty 50 index. The muted growth in the first half of the year got a boost on expectations of demand pickup in the later part of the year.

Decline in the heavyweights throughout the year dragged down the index. Bellwether companies like Nestle India Ltd. and Tata Consumer Products Ltd. slipped about 15% each in this year. Britannia Industries Ltd., Dabur India Ltd., and Procter & Gamble Hygiene fell about 9% this year.

Considering the expectation of inflation cooling down, companies could report some stable positive earnings in the upcoming third quarter, Tapse said.

There will also be higher government spending in the second half of the financial year, which could bring in healthy volumes in the sector and benefit the companies to perform, he said. "The downside would be limited from here, overall the rural and urban demand is coming back due to higher spending."

NielsenIQ said that the FMCG sector grew 5.7% by value between July and September, with rural and urban consumption rising 6% and 2.8%, respectively. But as weak demand and rising costs persist, the industry may end the year on a choppy note, with little optimism for 2025.

Despite urban weaknesses, rural demand showed signs of recovery, supported by easing inflation, government spending and good monsoon, according to analysts. Axis Securities expects the rural growth to sustain in the coming quarters.

Government is back in action with lots of initiatives in infrastructure development, and more employment opportunities which would cool down pressure on the stocks, Tapse said.