What's in store for consumption stocks ::Business Line

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Inflation continues to be high. The Budget has hiked excise duties, and manufacturers are likely to pass on this additional cost. Indeed, Tata Motors has already hiked product prices by up to Rs 35,000.

Service tax too has been hiked besides moving to bring all services, save a few, under the tax net. Eating out, for example, is going to become more expensive. Next, interest rates are yet to soften. The monthly loan payment burden for consumers will remain high.

These suggest that consumers, whose disposable incomes are already stretched, will have to further realign spending. Rural demand too is beginning to show signs of cooling off. Deficient monsoons and provisional data pointing to a sedate rabi crop may result in lower rural spending. The MGNREGA employment scheme, which had put money directly in rural hands, has seen an 18 per cent cut in outlay for the next fiscal.

WHO WINS

The ongoing trends in consumption, therefore, look set to continue for the next few quarters. Under the circumstances, companies that can effect increases in their selling prices and yet hold on to their sales volumes are the ones likely to win. For instance, HUL's dominance in soaps and detergents has allowed it to raise product prices successfully. Likewise, Page Industries has held on to good growth.

Companies with non-discretionary products or which don't take up a large share of consumer wallets may also sustain sales. A presence across price points or product lines, such as Shoppers Stop, also helps in stemming the impact of a spending slowdown. Maintaining margins, even as input prices rise, as was the case for last year, is another plus.

Overall, segments or companies with pricing power, strong rural demand or which take up a smaller wallet share, such as FMCGs, two-wheelers or small appliances, could manage to maintain revenue growth.

A decrease in interest rates could be the catalyst to boost spending. As disposable incomes are freed up, and credit becomes more attractive, an uptick in spending across categories could emerge.