FMCG, auto, banking, consumer durables markets take a tumble on low GDP growth

Non-conducive macro-economic factors and GDP slowing down could create ripple effect on key sectors which are the driving force behind the advertising and marketing sector in India

e4m by exchange4media Staff
Updated: Sep 4, 2015 8:24 AM
FMCG, auto, banking, consumer durables markets take a tumble on low GDP growth

The volatility in the Indian markets still continued as GDP data revealed a below than expected growth in the first quarter of the financial year. The Indian economy grew by 7% in the first quarter below the expected 7.5%. China too had grown by 7% in the same quarter but it was expected that India would overtake it during the same quarter.

Key sectors especially such as agriculture and manufacturing saw a decline in growth as against the same quarter last year. While agriculture growth was 1.9% in Q1FY2016 it was 2.6% during the same time last year, manufacturing grew by 7.2% in June ending quarter as against 8.4% during the same quarter last year. The core sector growth was also at a three month low of 1.1% and the industrial production growth is also expected to be low as the core sector index carries the maximum weight-age.

Apart from this news of 22% deficit in the rainfall in August from the India Meteorological Department and chances of a second successive drought this year appear high. This is the third driest monsoon than since more than a decade in 1993 and is expected to take a toll on the Kharif crop production. If low rainfall during the next month persists then the impact to agricultural output may decline several fold.

Low crop production would see it taking a heavy toll on key adverting and marketing driven industries such as FMCG and retail and would also impact the automobile sector too. The FMCG sector is one of the most impacted as most of the food and other products derived from agricultural produce. The shortage in the agricultural produce would drive prices of the raw materials which in turn would either see its impact in terms of increased pricing of the FMCG products or the company could choose not to increase prices and in turn the costs would be burdened by the company. It could end up affecting the revenues that will come in to these companies. Apart from this a lot of revenues for FMCG companies come in through rural spends. Low agricultural productivity would mean lower revenues and would in fact lead many to curtail their discretionary spends on such products. The same goes with retail and consumer durables in terms of rural spending. The automobile industry too sees good sales coming from rural areas when there has been a good monsoon and the opposite when not. With lower revenues from agricultural produce in rural areas would also result in many keeping their buys of automobiles on hold. This would result in lower sales for the auto industry.     

The troubling data and especially the lower than expected GDP figures in the first quarter added to the volatility in the stock market. Data also emerged that the BSE-listed stocks lost Rs.6 lakh crore in the month of August.

With macro economic factors and the GDP slowing down it could seen an impact on some of these key sectors which are the driving force behind the advertising and marketing sector in India. This would also impact the media companies that derive a majority of their revenues through advertising. The markets are now looking towards rate cuts from the RBI to push for more borrowing and consequently more spending in the economy. 

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