Is the severe drought affecting volumes for FMCG firms ?

FMCG firms across the board are struggling to grow, with growth slowing down to 3-4 percent in the past two quarters compared to 10 percent growth at the beginning  of Financial Year 2016. Drought -led distress can be blamed for the slowdown in consumption related to the FMCG companies. 

If we go by the data from IMRB - market research agency , consumption volumes in rural areas across three categories  viz., food and beverages , personal care and house hold goods have gown by a mere 4 percent for the month of January and February when compared to similar period previous year. 

FMCG sector should be deeply concerned as the sector is looking towards rural markets as their key growth drivers.  The urban markets and their growth in consumption has slowed down considerably since the past year for the FMCG companies. FMCG companies have been focusing on rural markets for higher growth pastures.  What is interesting is that the FMCG companies have been aggressively cutting prices of their products across their varied range of products to push sales. The increase in volumes is not yet significant in-spite of such pricing strategy adopted by the FMCG firms. 

BSE FMCG index has been trading flat if we consider 1 year time period. However stocks within FMCG pack viz., Marico and Dabur have been outperforming the benchmarks. Marico has delivered 29 percent returns over 1 year and Dabur was up by almost 9 percent. HUL was down by 1.12 percent over 1 year period and Colgate was down by almost 17 percent. 

Investors need to watch these stocks closely as the impact of the drought may be reflected in the upcoming quarter earnings for these stocks.