DNA Money Edit: Demand moderation to hit FMCG price hike

The fast-moving consumer goods (FMCG) sector has been riding high on volume-led growth for a major part of the fiscal gone by. The March quarter has, however, sprung a surprise as rural growth slowed down owing to a combination of macroeconomic factors and overall liquidity crunch, leading to a vicious cycle of degrowth in consumer demand.

Adding to the sector's operational challenges are volatile crude oil prices and currency rate, making it difficult for companies to absorb input cost increases. They have been looking for an opportunity to increase prices for a while now and current fiscal seemed to be a good time to do so. While players like Britannia are considering taking price hikes selectively, it will be quite a challenge for others to replicate this strategy.

The demand moderation, according to FMCG leader Hindustan Unilever Ltd (HUL), especially in the rural markets, will continue for some time. In such a scenario, increasing prices will impact consumer demand, thus further slowing down the market. As HUL's chairman and managing director Sanjiv Mehta rightly pointed out, FMCG really shines when there is a virtuous cycle of growth.

All eyes are now on May 23, 2019, when results of the Lok Sabha elections will get announced. The outcomes will decide the direction for consumer demand, operational health of the manufacturing sector and the possibilities of a price-led growth in the near future.