India Consumer “Short term blip to provide entry in long term opportunity" :: Prabhudas Lilladher

FMCG – Remains a safe haven despite slower growth
• CNX FMCG Index outperformed NIFTY by 22% in the past 12 months and 5% in one month, as flight to safety
continues amidst negative news flows from interest rate sensitive's
• Durable demand slows down: Discretionary segments showing lower demand; Cars sales have declined by
6.7% in FY13 (6% growth in FY12); two wheeler sales up by 3% in FY13 (12% in FY12); durables sales growth
has also slowed down
• Staples demand: volume growth has slowed down, more so in discretionary segments like processed foods
and premium personal care
• Jewellery and accessories: lower growth led by pressure on consumer wallet, decline in Gold prices like to
boost the jewellery demand
• Rural Demand: Medium-term outlook in rural demand remains strong led by higher agri prices and 46%
increase in allocation for rural spending (Rs800b) in run upto elections
• Input Costs: Input costs favourable for PFAD, Tio2 and copra; sugar and wheat prices are off their highs.
• Competition: Competitive activity is rising as HUL and Reckitt have been engaged in ad wars. Segments like
detergents, soaps, oral care and skin care are witnessing higher advertising and sales promotion
• Food Services: QSRs likely to remain under pressure in the near term; Service tax to impact sales in times of
tighter consumer wallet
• Positively inclined towards companies with strong pricing power or with benign input costs
• Large Cap Picks: ITC, HUL
• Mid Cap Picks: Titan Inds, Britannia and Pidilite

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Rural demand has been growing ahead of urban demand from past 2/3 years. We expect the trend to sustain as:
• Double-digit increase in MSP: Most of the agri crops have seen more than 15% CAGR in crop prices since 2011 which has
given a boost to the rural purchasing power.
• Wealth effect: Land and Gold account for a big chunk of rural savings. Land prices in rural areas in general and close to urban
clusters in particular have zoomed in the past few years. Gold prices have increased by 60% in the past two years and 120%
since Jan 2009. This has added to the wealth effect and purchasing power in rural India.
• Rural allocations up 46%; Despite fiscal considerations, GOI has proposed an increase of 46% in rural development
expenditure to Rs800bn, led by sharp increase in allocations for Rural housing and Roads & Bridges.
• National Livestock Mission: GOI has proposed National Livestock Mission (Rs3.1bn allocation) which will boost rural incomes
from ancillary activities. We note that similar initiatives on fruits (National Horticulture Mission) has given 20% CAGR in
production in the past few years.