Pent-up-Are We?

One of the favorite phrase of the pandemic for market watchers has been “pent-up demand”.

After the massive de-growth of 24.3%, 19% and 54% respectively for construction, consumer goods and consumer durables during the first quarter of FY-21, the growth has been accelerated by the pent-up phenomenon with the annual decline reduced to 9.1, 2.3% and 15% respectively for construction, consumer goods and consumer durables.

This signifies a growth of 20% each for construction and FMCG and 85% for Consumer durables from the bottom.

While this at sector level, larger companies have also shown annual growth given market share gains. With brands over 20% market share growing and those with less than 1% market share losing ground further.

As per Kantar without covid, there would have been a decline not growth in these numbers.

Need for stocking, newer product categories like sanitizers, cooking at home, communication, larger homes to facilitate work from home have led to this growth which no one really anticipated at the beginning of the year.

As the second wave is peaking, lot of companies are again raising the specter of “pent-up demand” once things settle down.

However anecdotal evidence seems to suggest that FMCG this time around didn’t see the kind of demand that was seen during the first wave and hence question is will we have pent-up demand and if yes where will it go.

The first wave also saw bank deposits growing at 11.4%-4% more than FY-20.

Second wave have hit the families hard. If people have escaped fatalities in immediate family, they have seen in relatives.

This has followed up with huge hospital bills and attendant financial and mental agony.

Once people come out of this second wave:

  • Will they be mentally prepared to splurge the way it happened last time?
  • If they do which categories will take preference?
  • Will it be still inclined towards personal mobilities and home improvements or will it shift to more safety and security elements like having a house, insurance and savings?

I do not know, however the mental scars of the second wave can potentially change the the spending pattern.

Only segment where pent-up demand is still pent-up is travel and tourism and how many families will have the mental inclination and courage to embark out given the still low levels of vaccination and fear of 3rd wave is anyone guess.

As an investor of-course we have learnt in the first wave how big has become bigger and ability of good managements and balance sheets survive any situation and it will hence be worthwhile to continue to invest (whatever your theme maybe) into companies that meet this criteria.

While the Indian economy as a whole dropped 24% in Q2 2020, in a strange turn of events it seems that COVID-19 has actually improved the fortunes of FMCG. Prior to the pandemic, the industry was only growing volumes 2.5% year-on-year, but this jumped to 4.6% in Q2 and increased still further in Q3. Even more impressively this represents a value growth of 11%.

Our data reveals that brands with a penetration of over 20% did largely grow during the pandemic while, as brands got smaller, the rate at which they lost penetration grew. In fact, brands that had a penetration of under 1% lost nearly a fifth of their volume

According to Nielsen, the Indian FMCG industry grew 9.4% in the January-March quarter of 2021, supported by consumption-led growth and value expansion from higher product prices, particularly for staples. The rural market registered an increase of 14.6% in the quarter and the metro markets registered positive growth after two quarters.

In the January-March 2021 quarter, revenue growth in the Fast Moving Consumer Goods (FMCG) industry from conventional sales channels climbed to double digits, while development in e-commerce normalised to single digits. NielsenIQ’s Retail Intelligence team released FMCG Snapshot for Q1 2021 and stated, “The FMCG industry in India has developed positive growth, growing at 9.4% in the quarter ending March 2021, up from 7.3% in the previous quarter (October-December 2020) over the same quarter last year.”

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