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FDI in Retail will affects farmer?

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Analysts are challenging the popular belief that volume growth is strong.

Stocks of fast moving consumer goods companies have been on a roll. From packaged food to personal care products, almost every category has been clocking robust growth over the last year. Since the third quarter of FY11, FMCG companies have reported double digit volume growth. While most analysts believe the industry will continue to grow as rapidly this year too, some others believe stress is building up as far as demand is concerned, both in rural and urban India.

Emkay Global, a domestic brokerage house, has been conducting channel checks across India to gauge the inventory levels across categories. Channel checks done in the Mumbai Metropolitan Region showed that the average manufacturing date for 37 stock keeping units was September 17, 2011. Average inventory in modern trade was dated back to 2.5 months as of November 30. The inventory in hair oils and toothpaste was older. In the South, too, the average inventory in modern trade was dated back three months. “The data aptly indicates that the inventory is relatively older and consumer sentiment seems worse-off compared to the Mumbai region,” says the survey.

Sales momentum seems to be moderating in the modern retail channel for FMCG categories, says Anish Damania, head of institutional equity at Emkay. The general perception is that food and beverage category is better placed than home and personal care. Given that rural sales are also showing some signs of deceleration, slower urban sales may come as a double whammy for FMCG companies.

However, other analysts believe that given the high base effect of one year of double-digit growth, a moderation in volumes is expected. The third quarter should reflect volume growth in high single digits, says one FMCG analyst. Rural demand is expected to hold up as well due to good monsoons, high support prices and with elections in five states, government spending is expected to continue support. BRICS Securities reiterates this view and says: “India’s consumption growth story is led by rural demand, which we believe will remain strong.” Finally, the fear of down-trading is also exaggerated, as unlike previous times, most large and small FMCG players have undertaken similar price hikes. These have been calibrated and across the board for both organised and unorganised players, making scope for down-trading limited.

Source By Business Standard (Date:03/01/2012 Time:11:40 IST)

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