Fast Moving Consumer Goods Sector Analysis Report 

High-potential Stocks: Top 2 Nifty Contenders

• Fast moving consumer goods (FMCG) is the 4th largest sector in the Indian economy. There are three main segments in the sector – household and personal care which accounts for 50%, healthcare which accounts for 31%, and food and beverages which accounts for 19% of the sector.
• The urban segment accounts for 55% of the overall revenue generated by the FMCG sector. On the other hand, the rural segment contributes 45% and is growing at a faster pace compared to the urban segment. Demand for quality goods and services have been going up in rural areas, on the back of improved distribution channels of FMCG companies.
• Growing awareness, easier access and changing lifestyles have been key growth drivers for the sector. Brand consciousness has also aided growth.
• The Government of India has approved 100% Foreign Direct Investment (FDI) in the cash and carry segment of the sector along with 51% FDI in multi-brand retail. Global retailers, who are keen to increase their footprint in India can now cash in on the consumption growth story of the country.
• The Goods and Services Tax (GST), launched in 2017, has been beneficial for the FMCG sector. Many of the FMCG products such as soap, toothpaste and hair oil now come under the 18% tax bracket against the previous 23-24% rate. Moreover, rates on food and hygiene products have been reduced to 0-5% and 12-18%, respectively.
• Despite being one of the fastest growing markets globally for FMCG products, the per capita FMCG consumption in India is still amongst the lowest in the world, giving the industry a long runway for growth.

• Supply
• Abundant supply through a distribution network of over 8 m stores across the country. Distribution networks are being strengthened in rural areas.
• Demand
• Not being an essential commodity, the demand for consumer products is elastic. Several brands are positioned with narrow product differentiation. However, rising contribution of women to the working force and growing nuclear families have led to higher demand for convenience foods, especially in urban areas.
• Barriers to entry
• Huge investments in establishing brand identity and setting up distribution networks.
• Bargaining power of suppliers
• Small and fragmented suppliers have limited bargaining power. Larger FMCG companies can negotiate better rates during times of high input cost inflation. Most companies have integrated backwards and have their own supply chains.
• Bargaining power of buyers
• Rising competition and the onslaught of the e-commerce boom does provide good bargain opportunities for customers. However, on account of a large number of buyers and limited number of suppliers, the bargaining power of consumers is low in the FMCG sector.
• Competition
• Competitiveness among Indian FMCG players is high. With more MNCs entering the country, the industry has become highly fragmented. Domestic players feel the competitive pressure from large well established MNCs. Spending on advertisements continues to grow and marketing budgets, as well as strategies, are becoming more aggressive

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• During the year 2019-20, the FMCG sector witnessed deceleration from the highs of the year 2018. Private consumption slowed down considerably and registered a growth of 5.3% in 2019-20 vs. 7.2% in the previous year.
• The last quarter of the financial year 2019-20, saw an unprecedented global breakout of the coronavirus leading to a humanitarian crisis and a significant economic fallout. This combined with an already challenging economic environment led to sluggish demand and overall weak consumer sentiment.
• The sector also saw disparate trends across divisions with discretionary categories like Personal Care seeing the biggest adverse impact of the slowdown, while Healthcare and Foods categories being relatively more insulated due to their essential nature.
• Revenue growth continued to decline from 11% in the third quarter of 2018-19 to 7% in the first quarter of current fiscal.
• The consumer trend towards a healthier lifestyle accelerated. Indian FMCG companies embraced this trend and created new emerging products in the health care domain. For e.g. Nestle India introduced a range of healthy breakfast cereals made of four traditional grains – wheat, rice, oats and jowar, under the NESPLUS brand.
• FMCG companies also saw a surge in contribution of e-commerce to their overall sales as the pandemic led more households to buy groceries online. Marico witnessed its e-commerce share increase to 22% from 12%.
• While inflation remained benign during the first half of 2019-20 prompting consecutive policy rate cuts by the Reserve Bank of India (RBI), a surge in food prices in the second half caused a spike in retail inflation.
• The Government of India initiated various measures to boost the economy and increased allocations to key sectors such as agriculture which was beneficial to the FMCG sector. The reduction in the corporate tax rate was also a big boost.
• The government also announced a slew of reforms including the amendment of certain provisions of the Essential Commodities Act, 1955. This will go a long way in stimulating growth in the FMCG sector by empowering farmers, strengthening market linkages and enabling demand-driven value-added agriculture.

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• Low penetration levels in rural areas offer room for growth across consumption categories. Major FMCG players are focusing on rural markets to increase their penetration in these areas. The rural FMCG market size is expected to touch US$ 220 billion by 2025.
• Online portals are expected to play a key role for companies trying to enter the hinterlands. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach. The e-commerce segment is forecast to contribute 11% to the overall FMCG sales by 2030.
• With the rise in disposable income, mid-and high-income consumers in urban areas have shifted their purchase trends from essential to premium products. There is huge headroom for FMCG companies to grow product portfolios in the premium segment.
• Indian and multinational FMCG players can leverage India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets.
• Tax benefits are expected to increase the disposable income in the hands of the common people, especially in rural areas, which will be beneficial for the sector.
• Opportunities arising from rapidly emerging digital technologies such as analytics and big data present a chance to make meaningful interventions and develop capabilities across the value chain for FMCG companies.

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How has the FMCG sector performed in the past decade and when is a good time to invest in the sector?

In the last decade, the FMCG sector has been relatively stable through various periods of peaks and troughs compared to the rest of the stock market. It has been a consistent performer, rising the most, giving over 200% returns.

As there is a constant demand for FMCG products, stocks from the FMCG sector provide consistent dividends and stable earnings regardless of the state of the overall stock market. For this reason, they are often called defensive stocks and can protect your portfolio during bad times.

However, in a sustained bull run, these stocks will underperform the market. The best time to buy such stocks is when there is a gloomy picture on earnings for manufacturing sectors, higher crude prices and higher interest rates. Since defensive sectors are less prone to the above-mentioned risks, they offer lot of value in uncertain times.

To know more about the sector's past and ongoing performance, have a look at the performance of the NIFTY FMCG Index and BSE FMCG Index.

Where can I find a list of FMCG stocks?

The details of listed FMCG companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of FMCG stocks.

Which FMCG stocks were the top performers over the last 5 years?

Pidilite Industries, Jyothy Labs and Bajaj Consumer Care were the top FMCG performers over the last 5 years in terms of sales and profit growth.

Pidilite Industries, a leading manufacturer of adhesives, sealants and chemicals, has remained resilient, thanks to its strong market penetration and brand recognition while Jyothy Labs with its strong portfolio of products and good professional management continues to focus on profitable growth.

Bajaj Consumer Care also has shown steady growth on the back of a favorable distribution strategy and has constantly restaged products to boost its market positioning.

To know which other companies performed well over the last 5 years, check out our entire list of top performers.

What kind of dividend yields do FMCG stocks offer?

FMCG stocks in general have consistent and stable dividend paying track records owing to the asset light business models, low capex requirements, consistency in earnings and strong cash flows. With an impressive dividend payout history, investors can expect to earn steady returns on their investments from these stocks

For more details, check out our list of top FMCG stocks offering high dividend yields.

Which are the FMCG stocks with the best shareholder returns?

Shareholder returns measure the total returns generated by a stock to an investor. This profitability helps gauge a company's effectiveness when it comes to using equity funding to run their daily operations. In the Indian stock market, Hindustan Unilever, Colgate and Bajaj Consumer Care are the top FMCG stocks right now with the best shareholder returns.

To know which other FMCG stocks offer great return on equity, you can check out the top FMCG stocks offering the best shareholder returns here.

Which are the best FMCG stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

• Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.
  
  To find stocks with favorable P/BV Ratios, check out our list of FMCG stocks according to their P/E Ratios.

• Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.
  
  To find stocks with favorable P/BV Ratios, check out our list of FMCG stocks according to their P/BV Ratios.

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FMCG Stocks Update

The S&P BSE FMCG Index was at 18,539.6 (down 0.7%). The index is down 1.7% over the last 30 days. And over the last 1 year, it has gained 18.9%.

Within the , the top gainers were ARCHIES (up 4.5%) and ADANI WILMAR (up 2.7%). On the other hand, PATANJALI FOODS (down 2.3%) and P&G HYGIENE (down 2.1%) were among the top losers.

Meanwhile, the benchmark S&P BSE SENSEX was at 65,322.7 (down 0.6%).