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Some of the country’s top firms — from fast-moving consumer goods (FMCG) to automotive and retail — have raised concerns about a slowdown in urban areas following their September quarter results. These worries arise amidst elevated food inflation and stagnant salary growth, according to a new report by brokerage Nomura.
“Premium consumption continues to be fairly strong, but the middle segment, which used to be the segment that most FMCGs would operate in, seems to be shrinking. The ones who are offering fresh to reasonable value in the middle segment are finding their fortunes temporarily impacted,” Suresh Narayanan, chairman & MD, Nestle India, said.
RC Bhargava, chairman, Maruti Suzuki, said that urban sales had been negative for the company in the September quarter. Rural sales, in contrast, had been positive, growing at 8%.
“Rural demand has been one of the saving graces this year. The weakness in urban demand, however, reflects the impact of several state elections and monsoons in certain areas. Heatwaves in the earlier part of the financial year (FY25), and heavy monsoon in some parts of the company have impacted the traffic across dealerships, particularly in urban areas,” Bhargava said in his post-results commentary on Tuesday.
Kavindra Mishra, MD & CEO of Shoppers Stop was blunt in his assessment of the market. “Demand was muted in July and August due to fewer wedding dates, extended rains and overall weak discretionary spending.” While the month of September was better in terms of sales for Shoppers Stop, the festive quarter of October, November and December, Mishra said would be crucial to gauge the impact on sales, notably, in urban sales.
Like FMCG and retail, where the lower half of the market, led by the mass, value and popular segments have been hit hardest by the urban slowdown, the trend is similar in auto. Bhargava of Maruti pointed to the market for passenger cars under Rs 10 lakh seeing a sharp decline in the September quarter. In contrast, the premium end of the market saw a resilient performance, Bhargava said.
“The under-Rs 10 lakh segment, at one point, accounted for 80% of the cars sold in India (around 2018-19), but that number is not growing now. This trend could continue in the future. Unless the lower end of the market grows, there are no feeders for the upper segment,” he added.
As per data from the Federation of Automobile Dealers Associations (FADA), sales of four-wheeler passenger vehicles in the first half of FY25 fell nearly 3% compared to last year in urban areas, even as such sales in rural areas grew close to 5% in the same period.
Data from FADA also suggests that sales of two-wheelers, three-wheelers, commercial vehicles and tractors have all fallen in urban areas in the first half of this year versus last year in the range of 1-12%.
With the high base effect in terms of urban sales growth kicking in this year, companies are not optimistic about an urban revival anytime soon. Rural growth, on the other hand, will continue to recover. For perspective, urban sales contribute to two-thirds of overall sales from a value standpoint, while rural contributes to a third.
“There are macro-economic factors that are a concern plus the high base effect within urban is also there. In contrast, rural has strong tailwinds from the monsoons and good harvest this year. So, the rural engine of growth should continue,” Rohit Jawa, CEO & MD, Hindustan Unilever (HUL), said.
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