Consumer-oriented sectors on the slow lane to recovery in FY2024-25
Consumer-oriented sectors have been struggling for most of the last year with rural demand refusing to pick up; however, the last quarter of FY24 saw a slight narrowing of the gap between rural and urban demand, and FY25 may be better than last year but t
Most discretionary categories, with the exception of jewellery and travel, will log moderate growth with negative to at same store sales growth
Consumer-oriented sectors have been struggling most of last year with rural demand refusing to pick up. However, the last quarter of FY24 saw a slight narrowing of the gap between rural and urban demand, and FY25 may be better than last year but the recovery is going to be uphill.
Let us take a look at some of the consumer sectors seen as lead indicators in the economy and a sensitive barometer of consumer trends – fast moving consumer goods, automobiles, smartphones and credit cards.
Rural recovery slow
During most of FY24, FMCG companies were focused on margins and there were several rounds of price hikes taken during the early part of the year. Rural demand and recovery dominated the conversations of most companies but that recovery is yet to happen in a big way. The elevated interest rates, as well as higher food in£ation kept rural demand subdued for most of FY24.
In the fourth quarter of CY2023, the FMCG sector reported a 6% growth yearon-year in value with an underlying 6.4% volume growth, according to Nielsen. However, there was a moderation in consumption growth comparedwith sequential quarters.
Nielsen’s head of customer success in India Roosevelt Dsouza observed in Q4, consumption gaps between urban and rural markets narrowed for the rst time. Rural consumers spent more on non-food than food products with non-food categories rising 8.7% compared with 3.8% for food.
Outlook for FY25
Nielsen expects the FMCG sector to grow 4.5-6.5% this scal year compared with 9.3% in FY24. .
BNP Paribas, which has a negative view on consumer staples, says in the past three months prices of key raw materials had started inching up, sequentially and annually. With pressure on volumes, elevated margins and competition from unorganised players, FMCG rms have very little room to manoeuvre for price rises.
Sales in the consumer discretionary segment were subdued last scal year with the retail seeing earlier end-of-season sales. Neither the wedding nor the festival seasons saw the kind of demand expected, and this may continue in the current year as well.
HDFC Securities said most discretionary categories, with the exception of jewellery and travel, will log moderate growth with negative to £at same-store sales growth. A demand pickup may happen only in H2 of the current scal.
Auto sector
The automobile sector has been a mixed bag with 2wheeler and sport utility vehicles sales showing good demand while that of commercial vehicles and tractors lagged. Automobile sales rose 10% in FY24, data from the Federation of Automobile Dealers Association showed.
New products, pricing, nancing, interest rates, economic growth and the monsoon will drive sales in the current scal year.
The dip in discretionary spending is expected to have an impact on automobile sales and if the Reserve Bank of India keeps the interest rates at the current level of 6.5%, it would affect price-sensitive entry level vehicle sales which are already subdued.
“How the monsoon pans out will be the critical factor for the tractor segment,” said Kumar Rakesh, auto analyst with BNP Paribas. It would also have an e©ect on 2-wheeler sales that are an extension of rural demand, he added.
Smartphone surge
It has not been a good year for the smartphone market in CY2023 with a 1% nominal rise in shipments to 146 million, as per International Data Corporation data.
However, while the rst half of the year saw a fall, in the second half there was a rise of 11%.
There was an acceleration of sales towards the end of the year with the December quarter reporting shipments of 37 million units, up 26% driven mainly by new products, launches, festive sales and o©ers. Several phone makers reduced prices and offered additional channel margins to manage their inventories.
The year was marked by a 14% rise in the average selling price to a record $255, the third consecutive year that prices have risen, restricting smartphone demand recovery.
Outlook for 2025
“IDC expects a decent start to the year,” says Upasana Joshi, Research Manager, Client Services, IDC India. “The rst quarter of CY2024 is expected to have ended with shipments of 33-35 million.” For the year IDC expects a 3-5% growth.
Credit cards
As per a report by Worldline, that tracks digital payments, credit cards are powering the growth in card transaction values.
In H1 of CY2023 creditcard transaction volume stood at 155 crore with a value of ₹7.9 lakh crore. In the second half, this rose to 178 crore and ₹9.4 lakh crore. At the end of the year, the total number of credit cards increased 21% to 97.9 million.
Outlook for FY25
Credit card usage will rise as people use them for buying high-ticket items, taking advantage of the mechanism of paying in instalments, said Sunil Rongala, Senior VP, Strategy, Innovation and Analytics, Worldline India.
Based on past years and the usage seen, there will be 25-30% growth in credit card transactions
(The writer is with The Hindu businessline)