Hello people, how are you all? I hope everything is going well, and if it isn’t, don’t feel bad because time will heal everything.
Today’s article is on the FMCG sector.
Well, the market is now recovering from the downfall it was facing.
As smart investors or stockoholics, we must not panic and keep investing in fundamentally strong stocks that we believe will be multi-baggers in the next 5 to 10 years.
Today we are going to discuss this very famous sector in detail. As we all know, the only sector that cannot close or face demand problems is the FMCG sector.
Even though the market fell during COVID, the shares of this sector did not suffer big losses and were able to maintain their trades.
But how? Here’s the answer:
FMCG Products
Fast-moving consumer goods is India’s fourth-largest industry.
The sector is divided into three major segments: food and drinks, which account for 19% of the industry; healthcare, which collectively accounts for 31% of the sector; and personal care and household, which account for the other 50%.
The urban segment accounts for around 55 percent of revenue, while the rural portion accounts for 45 percent.
It is expected that the FMCG sector will be driven by the surge in rural consumption.
As the products of the FMCG sector, serve the day-to-day requirements of the people, it is obvious that people will hardly stop buying goods as it is their daily necessities. Hence, the industry has minimal chances of going down.
Fast Moving Consumer Goods) FMCG Sector Insights
The fast-moving consumer goods (FMCG) sector, also known as the consumer-packaged goods (CPG) industry, is primarily in charge of manufacturing, transporting, and selling consumer goods.
From US$ 110 billion in 2020, the FMCG sector in India is predicted to grow at a CAGR of 14.9 percent, resulting in US$ 220 billion by 2025 making it the fourth largest sector of the Indian economy.
Despite worldwide lockdowns, the industry increased by 16% in CY21, a 9-year high, driven by consumption-led expansion and price expansion through higher product prices.
The rural market’s consumption increased by 14.6 percent in the same quarter, whereas metro markets increased after two-quarters of negative growth.
Growth Drivers of FMCG Industry
From all of the above research, we can certainly conclude that the FMCG sector is growing and will continue to grow in the coming years as well.
But is this all? Like, we just can’t decide anything just based on the numbers, right?
Of course, so what, how do we know whether the sector is worth investing in or not?
Don’t worry, we have curated some of the 4 biggest drivers of the FMCG industry.
Let’s take a look at each of them:
1. Increase in Rural Consumption
As discussed previously, the rural consumer industry and the rise in rural consumption are driving factors in the FMCG industry. It represents 40% of the entire sector’s revenue.
The Indian FMCG industry grew as a result of growth that was driven by consumption and rising product prices, particularly for essentials.
Reverse migration rates have significantly increased as a result of the lockdown, and when combined with increased investment, some experts predict that rural household consumption will rise in the coming years.
The World Bank also emphasized how the lockdown, which had an impact on over 40 million migrant workers, had significantly changed the country’s numerical structure.
Given that it is unlikely that any of these people will soon return to urban centers, the FMCG industry may experience growth in the rural market.
2. Rise of E-commerce
The technological revolution affected the entire Indian population.
Demand for e-commerce has significantly increased due to its greater accessibility throughout the nation, whether it’s in rural or urban segments.
It provides increased customer convenience because consumers can quickly select and purchase products of their preference using apps and websites, and goods will be delivered directly to their residential address using the home delivery service.
To take full advantage of these existing distribution networks, FMCG businesses have had to form quick relationships with huge e-commerce organizations like Big Bazaar, Zomato, Dunzo, and Grofers since the shutdown.
Many companies forecast that e-commerce demand will rise above pre-COVID-19 levels in the following months, with the underlying behavioral change of the citizens to shop online.
E-commerce platforms and increased digital connection in urban and rural regions are boosting demand for FMCG.
3. Youth Brand Awareness
The significance of product diversification in this period of rapid growth cannot be overstated. The days when every buyer in the market purchased the same item without making any effort to choose between different products is long gone.
In recent years, people have started to compare all of their alternatives before deciding which one perfectly meets their requirements.
Despite the vast market, every company is able to identify a small group of customers who prefer their products.
The variety of needs of consumers has increased brand awareness as well. If customers can identify their preferred brands, there is a certain market demand for these particular products.
Even though their needs may have changed, consumers still favor well-known brands.
This applies to both rural and urban marketplaces.
India has one of the world’s youngest populations and fastest-growing economies.
As a result, the per capita income has already been steadily increasing and is soon to pass $1,000,000. The increase in income and high demand have boosted the revenue of FMCG companies.
4. Investments
The government has permitted 100% FDI (foreign direct investment) in food processing and single-brand retail, as well as 51% in multi-brand retail.
This would also improve employment, and the distribution network, and provide high exposure for FMCG brands throughout organized retail marketplaces.
Between April 2000 and December 2021, the industry had a solid 20.01 billion dollars in FDI inflows.
Final Thoughts
I think you are now convinced to invest in the FMCG sector, but wait. Not all of it involves investing in the growth sector. As a smart investor, you should look for fundamentally sound companies to invest in.
As per my research, I believe that the FMCG sector has the potential to grow tremendously, but you need to do your analysis and research and then invest.
In that regard, we come to an end of our article. I hope you have gained valuable insights about the FMCG sector and are now hunting for growth stocks.
If so, please let me know in the comments below which stocks you are investing in and also why.