India's consumer market eyes recovery with rural growth in FY25

Consumer market: India Ratings and Research (Ind-Ra) has projected a revival in private consumption for the fiscal year 2025 (FY25), driven by anticipated improvements in rural demand supported by favourable agricultural conditions and easing inflationary pressures. This outlook contrasts with the subdued performance observed in FY24, particularly in rural markets, signaling a potential shift towards broader-based growth across consumer sectors.

The forecasted recovery in rural India is underpinned by expectations of a normal monsoon season and moderating inflation, factors expected to bolster volume growth in staple categories. The rural market, traditionally more focused on essentials, is poised to benefit from increased consumer spending, reversing the slowdown witnessed in recent periods. 

This optimism stands in contrast to the slower growth anticipated in urban and discretionary segments, which have shown signs of tapering off after a period of robust expansion. Ind-Ra's analysis highlights a persistent divergence in growth patterns between premium and value segments, indicative of a K-shaped recovery. 

Premium products have consistently outpaced their value counterparts, reflecting distinct consumer preferences and spending behaviors across socio-economic segments. However, the gap in growth rates between these categories is expected to narrow in FY25, as rural markets regain momentum and consumer sentiment stabilises.

Strategic challenges and margin dynamics

Prashant Tarwadi, Director of Large corporations at Ind-Ra, underscores the strategic challenges facing consumer companies amidst fluctuating input costs and competitive pressures. Despite potential cost-saving opportunities from benign input prices in FY25, companies are likely to prioritise sustaining market share through aggressive promotional strategies rather than margin expansion. 

This approach aims to navigate the evolving economic landscape while maintaining profitability amid competitive pressures.

Sector-specific performance and expectations

The analysis also delves into sector-specific performance, noting that while staple goods are poised for recovery, discretionary sectors such as consumer durables and quick-service restaurants (QSR) have shown resilience despite varying market conditions. 

Consumer durable companies have leveraged store expansions and robust demand trends to maintain growth, while QSR chains have adapted strategies to sustain consumer interest amid changing preferences.

Future outlook and considerations

Looking ahead, Ind-Ra emphasises the importance of monitoring rural wage growth and policy developments impacting consumer sentiment. The sustainability of the anticipated consumption-led recovery in FY25 hinges on continued economic stability and effective management of inflationary pressures. 

Strategic pricing and promotional initiatives will likely remain pivotal for consumer companies seeking to capitalise on emerging opportunities and navigate the complexities of India's consumer market landscape.