Industry segments that derive a significant portion of their earnings from rural areas, including auto, FMCG and consumer durables, are getting jittery with the progress of South-West monsoon dipping below the 11 per cent long-period average.
Tractor volumes in August, for instance, were soft due to weak monsoon and a delayed festive season. “The intensification of the El Nino phenomenon is the biggest risk to the rural economy and overall GDP growth,” said HSBC Global Research. “Already, we find that real rural wages and non-durables consumption are weakening. As the base normalises and rural demand comes under pressure led by the El Nino, we expect GDP growth prints to slow, averaging 5.8 per cent in FY24.”
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“The knock-on effect will be felt across sectors related to agriculture and rural consumption, particularly automobiles, FMCG, consumer durables, banks and NBFCs,” said UR Bhat, Director, Alphaniti Fintech. “This is not a good sign for the market and the economy, especially close to an election year. The government may be inclined to spend more on rural welfare in the coming days.”
According to Mayank Shah, Senior Category Head of Parle Products, while the demand has been resilient during August 15 and Raksha Bandhan, things could get bad if the monsoon fails to pick up in the next few days. “A lot also depends on food inflation, wheat and sugar prices have gone up in the last two months. We are hopeful that since this is an election year, the government will take measures to ensure prices of essential commodities don’t go up.”
Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd, said though the demand appears stable for now the situation remains fragile.
In the auto segment, inventory levels have already hit a record high of 60 days. “The rural economy had not completely recovered from the impact of coronavirus, but we did see a growth in July. However, the monsoon in August was not sufficient which could impact the rural sentiments. If there is no sufficient rainfall in September, then we can see an impact on the rural market. The silver lining is that last year’s festive season was good for rural despite low rainfall,” said Manish Raj Singhania, President, Federation of Automobile Dealers Association (FADA).
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Shashank Srivastava, Senior Executive Officer, Marketing & Sales of Maruti Suzuki India said since this year the festive season is more than 80 days, the auto industry is expecting sales to touch the 1 million mark but weak monsoon could spoil the party.
Mukesh Kochar, National Head-Wealth, AUM Capital, said RBI will be under pressure to maintain key policy rates at a higher level for longer in the backdrop of a dismal monsoon and sticky inflation.