Consumption demand is set to be driven higher by a recovery in the rural market in this fiscal and staples companies such as Dabur India, Hindustan Unilever, Emami, and Jyothy Labs are likely to benefit the most, according to a report by ICICI Securities.

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A number of factors such as strong performance of agriculture sector, likely normal monsoons, a good harvest of Rabi crops, opportunities for farmers to now go beyond APMC thereby improving their realizations, hike in MSPs, higher allocation under MNREGA and reverse migration of labor augur well to boost rural consumption.

According to the report, rural disposable incomes could benefit from higher allocation under MNREGA. Although rural consumption had slowed down more than urban over the past couple of quarters, the report believes that the trend is likely to reverse soon. Apart from the potentially higher incomes, rural consumption demand could get a boost from returning migrants coming into the consumption fold.

“We believe that a part of this higher income is likely to come into consumption,” ICICI Securities said.

As per the report, key enablers for companies to benefit from this trend are – higher contribution of an essential and value-for-money portfolio, strong direct reach into rural and high rural contribution.

However, the report also notes that the conventional containment response tends to affect poorer sections of society disproportionately. In the current situation, the impact on income inequality is likely to be more than previous pandemics.

“We believe that the key enablers for companies to capture this potentially higher consumption demand will be essential and value for money product portfolio, strong direct reach in rural India, high rural contribution and price-pointed packs (low unit packs or LUPs),” the report added.

Thus, the brokerage believes that the consumer staples companies with direct rural reach such as Dabur India, Hindustan Unilever, Emami and Jyothy Labs are likely relatively higher beneficiaries.