Consumer demand in emerging markets is getting affected because of weaker economic growth, in major markets such as Brazil and China.
But, according to Business Week, India could be a different story. “There are some things going in its favour. Economic growth seems to be recovering and inflation seems to be declining, particularly wholesale inflation. If the current trends continue, consumer demand should recover, especially in urban markets. Rural growth is subject to what happens to agricultural growth and may also get affected if the government actually cuts allocation to the rural employment guarantee scheme. Falling inflation is a big plus as it can improve profitability, or give companies leeway to spend more on advertising and promotions.
Therefore, India may resemble an oasis for consumer companies, relative to other emerging markets.”
The article goes on to say “Overall, Indian consumer companies seem to be in a better position because of the country’s improving macroeconomic prospects. While that is good for their earnings, it is also likely to keep investors interested in Indian consumer stocks. The BSE FMCG Index has gained 5.3% in the past three months and is trading at an expensive price-to-earnings multiple of 39 times. But that valuation may hold up if India can make good its promise of outperforming other emerging markets.”