Income growth driving consumption in rural pockets

Consumer Goods

Interactions with consumer companies, along with analyses of near-term results, drive to a conclusion that overall growth rates remain at healthy double-digit levels. This is quite well corroborated by the recent rural survey, where income growth at the overall level appears to be rather healthy but not near jubilant levels. This is probably attributable to a less-than-average monsoon and its uneven distribution. Regional diversity though was quite evident with the outlook for the western region being subdued (on poor rainfall), while the rest seemed healthy. Interestingly, there are trends of inflation creeping up, but these are yet to impact on consumer demand. With interest rates also inching up and an increased focus on creditworthiness in lending, retail credit penetration could slightly slow down, which could have a negative impact on near-term demand for discretionary consumption (paints, jewellery, apparel, etc.). Given healthy growth in income levels, staples could sustain their growth trajectory as these are low-ticket items. The shift from organised to unorganised segment continues and most small businesses have now comfortably shifted to new tax-compliant ways of doing business and the initial GST implementation hiccups are well behind them.

Rural incomes to stay at healthy levels despite a moderate monsoon: The monsoon has ended lower than its long-term average with highly uneven regional distribution. However, on average, farmer incomes will remain healthy, aided by higher MSPs and a normal yield across most regions.

Regional income patterns could show diverging trends: During the rural trip, JM Financial team saw divergent consumer sentiments in different regions. This is directly related to the disparity in monsoon. Most regions that have received rainfall in line with or better than long-term averages are witnessing positive consumer sentiments, while consumer sentiments in western and central India were rather subdued owing to a below-average monsoon. This could adversely impact festive demand in these markets, especially for discretionary consumption items such as paints and apparel.

Agri inputs

A wide disparity in brand awareness and decision-making criteria with regard to pesticide purchases among farmers in various states was observed during the rural safari. For example, while brand awareness was as high as 80 per cent in AP and Telangana, it was as low as 10 per cent in UP and Bihar. There is significant potential lying ahead in the sector, as farmers have realised the need to use high-quality agri inputs. So, with rising farm incomes and increased regional penetration by organised players, the agrochemicals sector is capable of accelerating annual growth to double digits.


The rural safari team visited Cholamandalam Finance, Mahindra Finance, Magma Finance and other financier’s branches around rural India. Interactions at branches and dealerships as well as with customers point to strong rural sentiment in most parts of India owing to a good monsoon, loan waivers and an increase in realisations. Non-farm income trends, however, have been mixed, with areas such as Tamil Nadu seeing muted or no growth. .


With rise in fuel prices and increase in insurance premiums impacting consumer sentiment, dealers across towns and districts are hopeful of a recovery during the festive period, starting October and continuing through November 2018. Also, the coinciding wedding season (until April’19) should aid sa­les.

Two Wheelers: In most rural/semi-urban areas, the demand outlook for two-wheelers was fairly robust. Rural Safari team received mixed feedback on the issue of higher insurance premiums affecting demand. In North, dealers highlighted the off-season to be the primary reason for a temporary weakness in sales, not the hike in insurance premiums. While being cautious on fuel prices, overall sentiment remained positive on the outlook for the festive season.

Bajaj dealers reported strong double digit-sales growth, driven by the attractive ‘Hat-trick’ scheme and aggressive price cuts in CT100. The offers have been strategically timed with the improvement in rural sentiment leading to pick-up in motorcycle sales. In a few regions, TVS XL100 (moped) and Apache sales have been directly impacted by aggressive pricing on the CT100 and Pulsar portfolio. The recently-launched TVS Radeon has been received well, bringing walk-in customers. While on the previous visit, the Rural Safari team found traction for the 125cc Hero Glamour, this time good traction was witnessed for the popular, entry level Hero HF Deluxe. Dealers remain positive on the new Xtreme 200. While scooters were gaining prominence in rural areas until the last visit, marginal sluggishness was found in sales this time.

Passenger Vehicles: Rural road infrastructure has been improving over the last 3-5 years. Focus of the Central and State governments on improving rural infrastructure augurs well for increasing penetration of compact cars.

Discussions with dealers suggest that a shift towards cars such as ‘Swift’, ‘Celerio’ and ‘Dzire’ is aided by rising aspirations, better road infrastructure and increasing rural incomes. MSIL by far remains the most popular brand in rural areas and having a dealer infrastructure/outlet helps build customer confidence. While Hyundai closely follows MSIL dealers in setting up sales outlets, other brands are still far away from matching MSIL’s network, service cost, parts’ availability and cost of ownership.

Commercial vehicles: After witnessing a prolonged phase of muted growth between FY13 and FY17, the LCV segment has had four consecutive quarters of 20 per cent+ YoY growth. The prevalence of unemployment was highlighted as the primary growth driver since owning an LCV provides an opportunity to engage in some commercial activity and earn a livelihood. Rapid growth in e-commerce has demanded a robust infrastructure for last-mile connectivity. GST implementation has catalysed wid­espread adoption of the hub and

spoke model in the country. Unsurprisingly, the revival in the LCV segment since Q2FY18 has coincided with this shift. As per feedback, MSIL has been rather aggressive with the Super Carry model.

Tractors: The second quarter is seasonally weak for tractor sales in India. In addition, concerns around unseasonal rainfall affecting crop yield, higher-than-expected replacement demand, delays in payment of subsidies and weak non-farm income in some states affected tractor sales growth in Q2FY19. Ho­w­­ever, long-term structural drivers remain intact. Normal monsoons in most states and healthy crop production are expected to drive robust demand for FY19.


Rural housing accounts for a major share of cement volumes in India, 35 per cent of the overall cement demand. The cement volume is expected to grow at 8 per cent over FY17-21E on the back of growth in Housing and Infrastructure segments. Housing is expected to post a 9 per cent volume CAGR, led by rural housing, which is expected to benefit from government schemes targeting the construction of 29 million houses by 2022. Urban housing (30 per cent volume share) is expected to benefit on account of government schemes promoting affordable housing. Cheaper availability of funds under CLSS is expected to spur growth in urban areas, especially in economically weak segments (EWS) and low income groups (LIGs). While the demand outlook is favourable, players have a supply pipeline that would get activated as the volume growth comes through, leading to a delay in narrowing the demand-supply gap. JM Financial belives that the sector should enter an upcycle only by FY25-26 owing to the supply surplus in the market.

Source: JM Financial