"Monsoon can be a big turning point for markets"

excerpts from an interview with DNA

Input costs, the prime worry of fast moving consumer goods (FMCG) companies over the last 12 months and more, may soon be a non-issue with production of agri-commodities expected to surge on a normal monsoon.

Such an event adds to the purchasing power of consumers, especially in the hinterland.

The India Meteorological Department has forecast a normal monsoon this year with an average rainfall of 98% of the long period average compared with a 23% deficit in the fiscal 2010.
Amnish Aggarwal and Nikhil Kumar, analysts with Motilal Oswal, in a note to clients said the monsoon can be a big turning point for the FMCG sector’s growth this year.

“We have seen volume growth suffering in high-penetration categories like soaps, detergents and shampoos. Downtrading has been rampant across product categories, especially in those that cater to the lower- and middle-income sections.”

Once food inflation starts easing off, there will be some respite for the consumer that would augur well for all companies, driving both value and volume-led growth, they said.

“We believe a normal monsoon will cool inflation and boost buying power, increase rural income and demand, and moderate input costs, which will ease margin pressure,” Aggarwal and Kumar said.