MOSL: INDIA STRATEGY | Rural India-Back on the saddle – Volume II-Signs of rural pickup more evident

​INDIA STRATEGY | Rural India: Back on the saddle – Volume II; Signs of rural pickup more evident

In our Rural Strategy note, Back on the Saddle, which we released in August 2017, we had highlighted the potential consumption revival in Rural India. Now, as we look back at the just-concluded 2QFY18 earnings season, we note that signs of a pickup in rural consumption are indeed increasingly evident.

2QFY18 corporate commentaries point towards rural demand pickup

After three years of subdued rural consumption, there are now increasing signs of a pickup. As we had pointed out in August, catalysts are in place to drive the awaited revival in rural demand. While two successive years of normal monsoon portend well for farm output, the combination of MSP hikes, direct benefit transfers and farm loan waivers should drive up disposable incomes. Corporate commentary following the 2QFY18 results from B2C sectors like FMCG, Autos, Durables and Retail reaffirms our view. Quite a few FMCG companies see rural growth outpacing or at least matching urban growth after many quarters. Auto companies like Hero MotoCorp, M&M and Escorts also highlighted rural growth recovery. India Inc expects the demand trends to strengthen as we move into 2HFY18.

Foundations for rural consumption revival in place

The South West monsoon for 2017 was at 95% of the long period average (LPA). However, in the key sowing months of June and July rainfall was 104% and 102% of LPA. Even rural wage growth is improving after a long time. After remaining flat YoY in 1HFY17, real rural wage growth improved to 3.3% in 2HFY17 and further to 4.6% during April-September 2017, the fastest pace in four years.