Despite fears of a weaker monsoon, Nomura's Mihir Shah anticipates muted impact on rural demand due to healthy reservoir levels and improved irrigation. According to reports from The Economic Times, Shah acknowledged that after two consecutive years of above-normal monsoons, India is likely heading into a below-normal monsoon year, compounded by El Niño conditions. However, he pointed out several mitigating factors that should cushion the blow, including reservoir levels currently 15% above their 10-year average and government buffer stocks roughly double normal levels. El Niño is expected to remain in a weak-to-moderate range through June, July, and August, only strengthening toward September by which point the monsoon season is nearly over. The Indian Ocean Dipole, currently neutral, could turn positive in the coming months, potentially offsetting El Niño's drag on rainfall. As per ET Now, Shah emphasized that while there will be some challenges, the mitigating factors provide sufficient support to rural consumption.
According to The Economic Times, Shah noted that rural demand has moderated since the fourth quarter, while urban demand has shown early signs of pickup, narrowing the long-standing gap between the two. He expects this trend to continue, with rural demand likely to remain rangebound rather than accelerating further, particularly as staple categories face low-to-mid single-digit pricing increases alongside a weaker kharif outlook. The narrowing rural-urban demand gap represents a significant shift in consumption patterns, with urban consumption showing signs of recovery after years of rural dominance. As per ET Now, while rural demand continues to outpace urban demand, the gap is expected to keep narrowing, though staple categories face pressure from pricing increases and inflationary trends.
As reported by The Economic Times, Shah flagged ITC as a key outlier following a steep tax hike exceeding 40% at the start of the year, the first such increase in several years. With the company passing on only 25-30% of that hike through pricing, Shah expects a high single-digit volume decline and a roughly 20% EBIT decline in the cigarette business this quarter. He believes the worst will largely be behind the company after the first quarter, though on a two-year CAGR basis, earnings growth remains flat, prompting Nomura to maintain a reduced rating on the stock. According to ET Now, the tax increase is higher than the price hikes the company has been able to implement, making margins likely to come under pressure despite the company's efforts to pass on costs through pricing.
According to The Economic Times, Shah remains constructive on Asian Paints, citing a favourable base effect this year given fewer monsoon-related disruptions and the absence of election-related labour shortages that hurt last year's painting season. He expects high single-digit to early double-digit volume growth to continue, supported by pricing increases of 13-14% expected to fully reflect in the next quarter. Margin pressure should remain limited in the near term given soft commodity costs earlier in the year and existing inventory buffers. As per ET Now, Shah had an anti-consensus buy call on Asian Paints and upgraded the stock two quarters ago, which performed well initially before facing headwinds but rallied more than 30% in the last quarter. The company is benefiting from more painting days available due to El Niño conditions and fewer election-related disruptions compared to last year.
On beverages and summer-driven categories like ice creams and cooling hair oils, Shah suggested a bottom-up approach rather than broad category bets, noting that while categories like soft drinks and ice creams should benefit from a harsh summer, others such as tea and certain QSR formats may face headwinds, creating a mixed bag of winners and losers within company portfolios. According to ET Now, while categories such as soft drinks, carbonated beverages, ice creams and cooling hair oils are expected to perform better, there could be headwinds for tea and certain quick-service restaurant businesses. Overall, Shah's outlook suggests cautious optimism for India's consumption space, with structural resilience in rural demand offsetting near-term monsoon-related anxieties, even as company-specific factors continue to drive differentiated performance across the sector.
