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*FMEG demand largely erratic: Following a strong August (marked by a 10% rise in FMEG demand), September has seen degrowth, especially in the case of fans. Dealers say demand is erratic with no clear trend at this juncture. YTD demand growth for Fans is ~2-3% and value growth is ~4-5%, which are lower than the historical average. Dealers do not expect any significant demand revival in the first fortnight of October. (The first fortnight marks the inauspicious Pitru Paksha span when new construction and home renovation projects are not undertaken.)

*High primary sales have caused higher-than-normal channel inventory: Inventory across FMEG product categories has been on the higher side as companies have pushed high primary sales into the channel considering strong demand in August. On the other hand, dealers report de-growth in retails in September which has caused high channel inventory, 20% higher than normalized levels.

* Downward revision in Fan prices: Few companies have resorted to downward price revision to entice demand. Some of them have gone through two rounds of price cuts with cumulative price cuts amounting to 5-7% in the past 45 days.

* New players with deep pockets intensify FMEG competition: New players like Reliance Retail have entered entry-level Fan market through its sub-brand BPL and is aggressively expanding its distribution presence. Its entry level fans have been aggressively priced and its range starts from Rs999, which is 15-20% lower than that of incumbent brands.

*Un-organized players seek comeback: Un-organized players have again become active in the market. They have turned more aggressive post the introduction of the BEE star rating as price differential between them has increased and demand for low priced fans exists in rural areas.

*Wires and Cables demand moderates in September: Demand for Wires and cables has moderated from double-digits in August to mid-to-high single digit in September so far. Revival in monsoon across the country has triggered the moderation. Dealers expect current month’s demand to be no more than a blip and reckon it would return to normalcy once monsoon abates given the upbeat housing and infra projects.

*Revival in rural demand likely to be gradual: Though demand in rural areas picked up in July and August, it has taken a hit in September. We expect this demand revival to be gradual coinciding with subsiding impact of the high inflationary environment.

*We remain Neutral to Positive on the Sector: We believe the September drop in demand is transient and it should pick up from the festive season of Navratri given the strong traction in real estate and infrastructure activity.