Nielsen: Revival around the corner for FMCG segment

The cheer in auto segment, which reported 10% rise in December sales, may reflect in the FMCG sector in coming quarters as consumers in India are feeling more confident about the economy on low inflation and growth prospects, according to research firm Nielsen.

Piyush Mathur, president, Nielsen India Region, said willingness to spend among Indian consumers is significantly higher as compared with last year.

"A very good indicator is the Indian automotive industry that has seen a very good growth as compared to an almost flat growth a year before. The sector drives 22% of the manufacturing GDP and hence is an important factor for job creation. It is a clear indication of consumers opening up to the idea of spending and there are instances of first-time consumers actually going for an SUV which never happened in the past," he said.

In an online survey of urban consumers in 60 countries, India was among the 17 countries which saw increase in consumer confidence in December quarter. While the overall global consumer (urban) confidence index (CCI) in Q4 2014 went down by two points, India, at 129 points, witnessed a three point increase sequentially (126 in Q3 2014) and continued to lead the index followed by Indonesia and the Philippines. On year-on-year basis the increase was much higher, that is by 14 points (115 in Q4 2013).

"It is very heartening to see that India continues to lead the pack of 17 countries. In fact, the last time India touched 131 points was in 2010-11, and with just two points behind (that number), India is very likely to create a new high in the coming quarters if the overall economic environment remains conducive," said Mathur.

Low inflation, positive economic environment and development initiatives led by the new government are instrumental in the uptick.

According to Nielsen, the mood is set to be echoed across sectors. "The FMCG industry is looking to grow by double digits in calendar year 2015, credit card penetration is rising, home loan disbursement is higher than in the third quarter, auto sales are also improving," the report said.

While the FMCG sector grew 7% (value wise) in 2014 though volume growth was just around 1%. However, due to high optimism in consumer spending, the sector is poised for a double digit growth reaching 10% in calendar year 2015 followed by 12% growth in 2016. In fact, of the 10% value growth, approximately 3% to 4% will come be volume growth. Lower inflation coupled with less uncertainty on job prospects is expected to play a significant role in the volume growth story that is set to come back in the market.

Commenting on consumer spending at the recent earnings meet, Sanjiv Mehta, CEO and managing director, Hindustan Unilever Ltd, had said that though certain segments did witness a pick-up, an across-the-board volume recovery was still some quarters away.

"The biggest pick-up has been seen in categories like home care and beverages as well as rural markets (pick up has been faster than urban in the last 12 weeks) and general trade. Having said that, we still have to see whether all this will sustain going forward and we will have to wait another quarter or two to figure that out," Mehta said.

While sentiments are high, industry experts said it typically takes two quarters to see things rolling on the ground. Saloni Nangia, president, Technopak, said that the confidence level has been positive both at the consumer and corporate / business level and the optimism is much higher at present.

"On the ground conversion of positive sentiments is something still awaited. If you see the results shared by listed entities in the FMCG and retail space, a lot of them aren't showing exceptional growth from a revenue or same store sales perspective. I think it will take another 6 to 8 months if not more for things to start showing up on the ground," said Nangia, adding that a major part of the current year has gone primarily towards building up the optimism and its results will be visible in the next fiscal.