Fall of rupee against major currencies, new norms of standard-size packaging, increase in raw material costs due to upward

spiraling interest rates and inflation together might dent the performance of the fast moving consumer goods (FMCG) sector which ruled the bourses in the current calendar year, apex industry body ASSOCHAM said today. According to a sector specific analysis of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) a sharp depreciation in the value of rupee and new packaging norms from July 1 are going to have a drastic effect on the FMCG industry which is likely to increase cost of regular products like biscuits, coffee, tea, toiletries and personal care items by about 10 per cent and more by first quarter of the next financial year. Input cost inflation, persistent rise in raw material price, rising fuel costs, fluctuation in the currency, dipping industrial growth, slowing global economy together with an overall moderating consumer sentiment might lead to a slow volume growth of FMCG segment in 2012, said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the chambers analysis titled FMCG Sector: An Outlook for 2012. All of these factors might pinch the FMCG industry which will go for a fresh round of price hikes as we usher in the New Year, said Mr Rawat. The sector might take a hit of about 10 to 15 per cent in sales including the semi-urban and rural market as the burden might be shifted to the price-conscious end consumers or else companies will have to opt for down trading. Based on emerging market scenario and overall macro-economic expectations the Reserve Bank of India (RBI) may go in for a reduction in interest rates to boost the sagging economy, improve demand momentum and investment climate, said Mr Rawat. With interest rates peaking off we expect RBI to reduce the cash reserve ratio (CRR) and the repo rate nearly by 25 basis points each in the forthcoming monetary policy review in January, 2012 and FMCG will turn out to be the biggest beneficiary of the same. ASSOCHAM interacted with about 100 industry experts, analysts, economists and FMCG companies, firms officials and sought their opinion on what the next year holds for the sector. Over half of the respondents reckoned that FMCG companies are showing signs of consolidation and might not be able to sustain the strong volume and sales growth momentum in the next two to three quarters. Majority of those interviewed cited weakening rupee against the dollar and the imported inflation as the primary reason that might hamper the growth of FMCG in the year ahead. Rest of them said that government notification on revised norms for packaging of FMCG products will propel the companies to increase their prices due to high raw material costs eating into their already stressed profit margins. Many industry experts said that the consumption pattern will moderate as price sensitive

Indian consumers will tighten their budget and keep a close watch on their expenses and might even switch over to cheaper variants, regional or local brands to save money. While nearly 35 out of 100 respondents agreed that soaring inflation and rising interest rates have been adversely impacting the margins of FMCG companies. About 30 per cent said that interest rates and inflation will abate gradually and the growth will continue despite certain hiccups. 45 out of the total respondents said that the industry will rebound after the last quarter of the current financial year.