Chennai: Subdued volume growth of fast moving consumer goods companies is expected to continue in the first and second quarter of this fiscal, though a recovery could be in sight during the later part of the year.
The volume growth of FMCG companies was seen shrinking in Q4 of FY19 due to protracted winter and delayed summer, liquidity crisis at the wholesaler-level, limited payout under PM-Kisan scheme and increased hoarding of cash ahead of elections.
While some of the seasonal factors have reversed, the macro-economic conditions are yet to revive. Hence the slowdown in FMCG consumption is expected to continue for the first half of FY20 as well, finds Edelweiss Securities.
The subdued government spending will continue in the June quarter of current fiscal as the elections lasted till the end of May. It will take some time for the government expenditure to spur growth as GST and direct tax revenues are falling short of expectations. Owing to procedural reasons, funds under PM-Kisan and PMJAY have not been completely disbursed as yet.
Similarly, private consumption expenditure and savings trend still remains tepid. This has led to shrinking of overall disposable incomes. High levels of unemployment and subdued rural wage growth will take some more time to see any revival. Hence Edelweiss expects the volume growth of FMCG companies to remain under pressure for the current and next quarter.
However, by H2 FY20, there is a likelihood of revival. The injection of funds by RBI to ease the liquidity situation of NBFCs will have an overall impact on the economy. Further, the GST collection in April and May can encourage the government to expand stimuli, especially in rural areas.
