New Delhi: Rural demand outpaced urban markets for fast moving consumer goods for the first time in five quarters in the January-March 2024, while car companies reported higher rural sales compared to urban, signalling a broad-based turnaround after 15 months of sluggish demand in India’s hinterlands.
Maruti Suzuki saw record sales in rural markets that increased 11% last fiscal, outpacing growth of 7% in urban centres. The company sold 787,000 vehicles in rural areas in FY24. Two-wheeler sales last quarter also went up by 24.9% to 4.5 million units. Rural markets account for 55% of all two-wheelers sold in the country. “There has been a lot of investments in infrastructure development in rural areas which is supporting car sales. Income levels of rural consumers are on a rise.
The gap in the ratio of income of consumers in rural markets vs urban markets is closing and is expected to come down to 1.4X (if urban buyers earn INR 140 rural buyers earn INR 100) over the next couple of years, from the current 1.8X, further boosting consumption in these areas going ahead,” a senior industry executive told ET. Rural sales at Hyundai grew 9% in the first 4 months of this year, compared to sales increase of 1% in urban areas. At the Korean auto major, rural markets have chipped in 19.8% to overall volumes.
Consumer intelligence firm NielsenIQ (NIQ) said in its FMCG quarter sector update on Tuesday that sales in rural markets, crucial for the overall health of the FMCG sector, grew at 7.6%, aided by personal and home care categories. This compares to 5.8% growth in previous quarter. Urban sales declined sequentially to 5.7% in the March quarter, slower than the 6.9% increase in the preceding October-December 2023 quarter.
“The slowdown in urban markets is due to flat value growth as companies cut prices by up to 10-15% over the last three quarters. While there is good volume growth due to rationalised prices, value growth is flat,” said Mayank Shah, vice president, Parle Products, which derives close to half its sales from rural markets.
In contrast, Shah said rural demand grew riding on a robust rabi crop, bumper wheat crop and government measures like increase in MSP and higher spending on MNREGA, adding that he expected rural demand to remain robust through the year. Forecasts of an above-normal monsoon by IMD and Skymet are expected to further aid rural demand for both consumer and auto sectors, executives said.
“The worst is behind for the FMCG sector and gradual recovery will continue due strong monsoon this year. We expect local players to lose market share due to a base effect playing out,” said Abneesh Roy, executive director at Nuvama Institutional Equities.
