India’s top companies are expected to report their weakest pace of growth in two years in the quarter to March, held back by drought and slack demand -a slowdown analysts and companies expect to reverse with an ‘above-normal’ monsoon in 2016.
Forecasters from the Indian Meteorological Department are eyeing above average rains from June to September, a boon in particular for consumer goods firms whose customers are more likely to live in villages than cities.
A Reuters analysis of more than 100 companies shows annual revenue will fall on aggregate about 5% in the fourth quarter of the year to March.
Over the coming 12 months, however, that is estimated to jump 10% to the highest in three years. In 2016/17, Reuters data shows analysts expect the pace of sales growth of Indian companies will hit a five-year high.
“The sentiments are becoming positive and people consume more when they feel good,” said Kishore Biyani, chief executive of retail giant Future Group.
Biyani said he was opening more stores, but gave no detail. The group runs various retails chains through Future Retail Ltd and Future Consumer Enterprise Ltd.
Consumer firms in Asia’s third-largest economy have been particularly hard-hit as India’s crops wilted during back-to-back drought years, denting rural customers’ ability to spend.
Now there are green shoots.
“I expect that the slowdown in FMCG (fast-moving consumer goods) will be reversed, starting in the second half of this financial year,” said billionaire Adi Godrej, chairman of the Godrej Group, whose units sell everything from hair dyes to water pumps.
“We are expanding our distribution into the rural markets and business will improve.” He gave no details.
Some investors are already jostling for position.
Mumbai’s Bonanza Portfolio Ltd, which manages about $15 million of investments, is looking at companies that target low-income buyers of honey, herbal tonic and similar products, from Marico Ltd to Dabur India Ltd, said Yogesh Nagaonkar, vice president at the fund.
He said farm equipment makers like Escorts Ltd and Mahindra and Mahindra were also expected to get a boost from better rains, along with car maker Maruti Suzuki India Ltd.
Some analysts expect automobiles and auto parts, with projected sales growth of 14.44% in 2016/17, to post the highest yearly revenue increase in five years.
But the outlook is not all rosy.
A Hero MotoCorp Ltd motorcycle dealer in Maharashtra state’s Aurangabad district, one of the worst hit in the drought, said he was stuck with unsold bikes and was unlikely to order more for now.
“As of now it’s only a projection,” he said of the monsoon. “But with a good monsoon, you will see a lot of pent up demand.”