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Rural India, which usually projects about 30 percent higher growth ratesthan that of urban, is currently displaying similar growth rates.

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Last Updated : Jan 09, 2020 07:50 PM IST | Source: Moneycontrol.com

FMCG sector may continue to reel under pressure until Q3FY21: CARE Ratings

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FMCG sector may continue to reel underpressure until Q3 FY21: CARE...

D-Street Buzz: PSU banks gain led by SBI;Infosys rises ahead of Q3...

Govt appoints consasset sale by BEML;

1/10/2020 FMCG sector may continue to reel under pressure until Q3 FY21: CARE Ratings - Moneycontrol.com

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Despite some definite

signs of improvement in

economy in the near

future, CARE Ratings does

not expect much

improvement in Indian

fast moving consumer

goods (FMCG) sector until

Q3 FY21.

The Indian FMCG sector has been on a slow growth trajectory since the past four

quarters since Q4 FY19.

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Changes in FDI norms: The Centre decided to change foreigndirect investment (FDI) regulations for single brand retail,coal and lignite mining, digital media and contractmanufacturing. The reforms are being seen as India push tobecome a part of the global supply chain at a time when theUS-China trade war has caused disruption.

FMCG sector may continue to reel underpressure until Q3 FY21: CARE...

D-Street Buzz: PSU banks gain led by SBI;Infosys rises ahead of Q3...

Govt appoints consasset sale by BEML;

1/10/2020 FMCG sector may continue to reel under pressure until Q3 FY21: CARE Ratings - Moneycontrol.com

https://www.moneycontrol.com/news/business/fmcg-sector-may-continue-to-reel-under-pressure-until-q3-fy21-care-ratings-4801621.html 3/5

The initial signs of a slowdown were noticed by larger players of the sector when they

the witnessed softening of demand for such goods, especially from the rural segment.

Rural India, which usually projects about 30 percent higher growth rates than that of

urban India, is currently displaying similar growth rates.

Multiple factors including the liquidity crisis that began in Q2 FY20 that created

ripples in the economy and undoubtedly impacted the FMCG sector, which is

dependent on the sufficient availability of cash in the economy.

The rating agency believes that certain categories of food products may witness a

gradual demand pick up. However, the personal care category is expected to continue

remaining under pressure for for the next six-seven months at least.

“Factors such as favourable monsoons, expectation of tax rate cuts –including GST and

personal income tax, announcements in Union Budget of FY21 in favour of rural

economy, among others, shall play a crucial role in uplifting consumer sentiments and

bringing demand revival,” read CARE Ratings' report on the FMCG sector.

According to the rating agency, FMCG players can deal with the slump in rural

consumption and revive demand by introducing smaller packaging so as to encourage

users to try new products, and thereby improve volume growth, which is essential for

companies in this sector that survive on wafer-thin margins.

CARE Ratings also suggested introducing sales promotion activities such as discounts,

rebates and advertising to improve visibility and persuade consumer purchases.

All these measures are expected to help companies to generate fast cash and clear out

inventory.

The rating agency pointed out that distribution still remains a major challenge due to

insufficient infrastructure in rural India for roads, electricity, and power.

“Improving access and taping new markets, especially in rural areas, is pivotal for the

sector to grow. FMCG players should also take increased advantage of e-commerce

platforms that ensure last mile delivery of products,” the FMCG report read.

CARE Ratings also stated that the government also needs to step in to address the

liquidity crunch faced by both wholesalers and retailers. The inability to source credit

from the banking system does put pressure on funding their working capital

requirements.

FMCG sector may continue to reel underpressure until Q3 FY21: CARE...

D-Street Buzz: PSU banks gain led by SBI;Infosys rises ahead of Q3...

Govt appoints consasset sale by BEML;

1/10/2020 FMCG sector may continue to reel under pressure until Q3 FY21: CARE Ratings - Moneycontrol.com

https://www.moneycontrol.com/news/business/fmcg-sector-may-continue-to-reel-under-pressure-until-q3-fy21-care-ratings-4801621.html 4/5

Erratic and delayed withdrawal monsoons in 2019 also affected farmers' income, and

the government initiatives invoked provided limited relief to farmers for improving

rural income, leading to sharp escalation in unemployment levels adding to the rural

woes.

Due to these factors, the sector did not manage robust growth and has been on a

decline since the last quarter of FY19, and recovery seems still a bit distant.

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