Concerns over a widening monsoon deficit could weigh on India's consumption recovery in the months ahead, with the impact likely to extend beyond rural markets and into lower-income urban households, according to Amnish Agarwal, Co-Head of Institutional Equities at PL Capital.
India recorded rainfall deficits of 25-40% during the first half of June, with central India among the worst-affected regions. While the monsoon has since regained momentum and advanced deeper into Maharashtra, Telangana, Karnataka, Chhattisgarh and Odisha, concerns remain over the overall season, especially with the possibility of an El Niño event emerging later this year.
Speaking to NDTV Profit, Agarwal cautioned that, "El Niño was expected to impact the second half of the monsoon season. But even the first-half conditions are not good," he said. "We might be heading towards one of the worst deficits in monsoon in the current year."
FMCG And Monsoons
While the historical correlation between FMCG demand and monsoons has weakened as rural incomes have become more diversified, Agarwal believes the broader consumption environment remains vulnerable.
"The proportion of rural income dependent on agriculture has gone down over the years. But having said that, both rural demand and the lower end of urban consumption can come under pressure in the coming months," he said.
A key concern is rising inflation in essential commodities. Unlike last year, when food inflation remained subdued, consumers are now facing higher prices across categories. Petrol and diesel prices have also risen. According to Agarwal, most FMCG companies have already taken price hikes of 4-8%, effectively reversing the benefits consumers received after GST-led price reductions.
ALSO READ: Indian Monsoon Deficit Hits 40%; Core Farming Belt Appears Cloud-Free In Satellite Images
Who Gets Impacted?
Among listed FMCG companies, firms such as Colgate-Palmolive India, Hindustan Unilever, Jyothy Labs, Marico, Britannia Industries and Godrej Consumer Products derive 35-45% of their revenue from rural markets, making them relatively more exposed to a prolonged weakness in farm incomes.
The impact could eventually spread to discretionary categories as well. "The small-ticket items like FMCG may be the first to get impacted. But if the weakness persists, then segments like two-wheelers and rural financiers could also start seeing pressure," Agarwal said.
He pointed out that the auto sector is already approaching a high base after the GST-led boost witnessed from September last year. At the same time, rising fuel prices and the possibility of higher interest rates could further weigh on affordability. "Now you have three factors — incomes are down, petrol and diesel prices are up, and interest rates could move higher. The overall cost of ownership of a vehicle goes up," he said.
Despite the near-term concerns, management commentary across FMCG companies remains broadly constructive. Most companies continue to highlight premiumisation, volume-led growth and improving urban demand, although raw material inflation remains a key challenge.
Stocks such as Emami, Dabur, Godrej Consumer Products and Varun Beverages are among those seen offering the highest upside potential by analysts, even as investors keep a close watch on the progress of the monsoon over the coming weeks.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.