First Signs Of Revival In Demand For Consumer Goods After GST Bump
New purchases of consumer goods have started but growth is still slow.
Supermarkets and general stores are seeing first signs of revival in demand after fears of losses on inventory led distributors to pare stock in the run-up to the Goods and Services Tax.
“New purchases have started but are still slow. July was dull as old stock was still in the trade channel,” said Dhairyashil Patil, national president of All India Consumer Products Distributors’ Federation. The situation should start improving in the next one week as wholesalers and stockists will get on to the GST network.
Bulk dealers cut inventory before the new nationwide tax rolled out on July 1 fearing losses on existing stock for two reasons: uncertainty over prices of items on which tax rates fell and loss of tax credits. Hindustan Unilever Ltd., India’s largest fast moving consumer goods maker, cited this as the reason for flat volume growth in the three months ended June. HUL and other companies agreed to compensate dealers for their losses but demand didn’t pick up immediately after the GST rollout.
“Consumer demand was impacted in the first two weeks of July, but it’s getting better every day and having a simpler B2C (business-to-consumer) invoice structure will go a long way in helping bring consumer sentiment rapidly back on track,” Neville Noronha, chief executive office of Avenue Supermarts, the parent of India’s most valuable retail chain D-Mart, said after its earnings on July 22. Supply from vendors is also returning to normal, he said.
Falling sales in June meant manufacturing activity slowed during the month on a slower growth in new orders, according to the Nikkei India Manufacturing PMI. The inventory of finished goods remained below 50, with companies exhausting existing stock amid low demand, according to a Nomura research note.
The demand is slowly emerging from modern retail and general stores, Sunil Kataria, business head for India and Saarc, Godrej Consumer Products Ltd., told BloombergQuint on July 24. It will pick up by August, he had said.
Gaurang Shah, head investment strategist at brokerage Geojit Financial Services agreed. “It’s only a matter of a month before the situation gets to normal.”
Transition Pain
Several retailers were still adjusting to the GST till the first half of July, Credit Suisse’s channel checks for HUL revealed. The FMCG giant expects it will take a quarter or two for retail channels to normalise, the brokerage’s note said.
A pick-up will begin closer to Diwali and margins will be under pressure till then, said Sanjiv Bhasin, executive vice president-market and corporate affairs at brokerage IIFL.