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FMCG: Facing Demand Headwinds...
May 21, 2016

FMCG companies' results for the quarter ended March 2016 indicate continued volume and pricing pressures. Volume pressures are led by slowdown in rural markets and subdued sentiments in urban zones. As management of most companies did indicate, rural volume growth came in lower as compared to urban volume growth - which was not the trend earlier.

With inflationary pressures now building in, it may seem to be a favourable ground for the sector as it would allow them now to up prices. Having said that, the margins for most of the players are at their all-time highs - or are hovering close to them. And with increasing market share and volume being the priority for most players, how this will translate to future pricing strategies - especially at a time when the favourable cost scenario seems to be behind it - will be interesting. Not to mention the rising competitive intensity. With valuations of FMCG companies holding up (despite the surge in profits over the past year), market expectations are that of a volume bounce back going over the short to medium term. We believe investors should well consider how this could possibly trickle down into profit growth. With all eyes on the monsoons, this expected trend however is still some time away.

This Chart Of The Day was published in The 5 Minute WrapUp - The Case of the Disappearing Money

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