FMCG Sector in India: Overview and Growth Outlook

Overview of FMCG Sector In India

Fast Moving Consumer Goods or FMCG Sector comprises all the firms involved in producing, distributing, and marketing of Consumer Goods required on a daily basis, which generally have a shorter shelf life and repetitive and inevitable demand.

Fast-moving consumer goods (FMCG) is the fourth largest sector in the Indian economy. There are three main segments in the sector: food and beverages, which accounts for 19% of the sector; healthcare, which accounts for 31% of the share; and household and personal care, which accounts for the remaining 50% share.

Past Performance of FMCG Sector In India

During FY2019-20, the sector witnessed a growth of 7.2% as per AC Nielsen, which is almost half of the 14% growth reported in FY2018-19. The FMCG sector saw a sharp slowdown during the year on account of moderation in economic activity, low farm incomes and weak rural wage growth, liquidity crunch in the system, high unemployment levels, and downtrading across categories.

By March 2020, the sectoral growth dropped to 3.3% in value terms and 0.5% in volume terms. From October 2020 to December 2020, the FMCG market rose 7.1%, driven by food items, health, hygiene, and rural areas.

Impact of Covid-19 on FMCG Sector

The Coronavirus pandemic has further impacted the sector since March 2020 due to restrictions on the movement of goods, supply-side bottlenecks, and impact on consumption. Consumers have been stocking up essential products such as packaged foods, staples, tea, coffee, milk, detergents, and other products of daily usage. During this phase, demand has also surged for health and hygiene products as these aspects came into sharp focus. There was a surge in demand for hygiene products like sanitizers and disinfectants in addition to immunity-building OTC and healthcare products. However, discretionary and nonessential items have seen weak demand as the focus during the lockdown has been on food and hygiene.

The industry is expected to undergo recalibration of the supply chain and distribution network, with channels like e-commerce and Direct to Consumer gaining salience. Local Kirana (grocery) stores have seen a resurgence as proximity and availability of products came into prominence. These retail outlets may become more organized, digitally enabled, and serviced directly.

Health Care Industry

In view of the Covid-19 pandemic, the need to build immunity and fight illnesses has gained prominence, not just in consumer mind space but also among the medical fraternity.

The demand for Ayurvedic products has been on the rise for a few years now. As per a report by IMARC, released prior to the COVID pandemic spread, the Indian Ayurvedic products market is expected to grow at a CAGR of 14% during 2019-2024.

A key factor driving the Indian ayurvedic products market is the increasing popularity of natural and herbal medicines and their benefits among consumers. Factors such as rising health concerns and awareness about the side-effects of western medicines are further driving the consumer preference for Ayurvedic products in the country. Furthermore, the distribution network of ayurvedic products has improved significantly, increasing the accessibility of these products across both urban and rural regions.

Home & Personal Care Industry

India’s home and personal care industry encompass home care products like household cleaners, detergents, toilet cleaners, and air fresheners and personal care products like hair oils, oral care products, skincare, and cosmetics. With downtrading increasing across categories, most of the subsegments like Hair Care and Oral Care saw low single-digit growth in the full year 2019-20. India’s household care industry, on the other hand, saw high single-digit growths on the back of rising awareness about health and hygiene.

Ever since the COVID outbreak, the consumer need for hygiene products – ranging from hand sanitizers to household disinfectants – has gone up significantly. According to Nielsen India, demand for such products jumped by nearly three-fold. To cater to this growing need, companies across sectors diversified into manufacturing hygiene products for sanitizing hands and personal spaces within homes.

This increasing awareness on personal hygiene, coupled with the rise in adoption of digital media, social media, and e-commerce, consumption of home and personal care products is likely to sustain. Going forward, in the Covid-19 world, the industry might see consumers spending more on essential personal care products and lesser on discretionary personal care products. Consumers are likely to increase focus on value for money with the premium category likely to see a moderation. However, some of these trends may be temporary in nature and a rebound is likely to happen post-Covid.

Changing Dynamics of FMCG Sector

1. Increased consumer focus on healthcare, particularly preventive healthcare, with a preference for Ayurveda Based solutions that boost immunity.

2. Greater focus on Personal Hygiene with demand for hand and home sanitizers expected to grow exponentially.

3. Discretionary spending would be curtailed due to the shift of priorities towards essentials.

4. Movement towards financial security to gain momentum

5. Technology to act as a catalyst for convenient, safe, and enhanced consumer experiences

Growth Drivers for FMCG Sector

1. The increased population of working women

An increase in the population of working women leads to a rise in demand for packaged products and a rise in orders from Quick Service Restaurants (QSR) like Dominos, MC Donald’s, etc.

1. Increased disposable income and growing per capita expenditure

The first leg of growth in the FMCG sector was led by an increase in the market penetration in rural and suburban areas. The next leg of growth is believed to come through the premiumization of the FMCG products and for the demand to sustain through premiumization-led growth, an increase in the disposable income and working population is imperative. Fortunately, disposable income in India has increased by a whopping 30% from 2014-15 to 2019-20 and this trend is expected to continue, as per industry projections and experts.

1. Increased awareness of online shopping

2. Higher brand recognition and consciousness

3. The constant change in consumer preference

4. Banking policies and government's regulations

5. Growing interest for foreign investors

FMCG Sector’s Future Outlook

The FMCG sector in India is likely to continue the growth trajectory by virtue of essential drivers like rising population, favorable demographics, increasing affluence level and disposable incomes, increasing penetration and per capita consumption, and rapid growth of organized retail and online channels. Various grass-root level initiatives for the farmers by the government including agricultural credit and direct subsidy transfer together with remunerative prices for crops is anticipated to boost farm income, which in turn would augment rural consumption.

Compared with global consumption, the outlook for India’s consumer market looks promising. The demographics are favorable as India has a population of 1.3 billion and half of those people are under the age of 25. Per capita income of the Indian population has increased to USD 1,804 in 2018 (Refer Chart 4) and is expected to grow at 8-9% in the coming years. As per BCG, ‘Even assuming conservative GDP increases of 6% to 7% a year, we expect consumption expenditures to rise by a factor of three to reach $4 trillion by 2025. India’s nominal year-over-year expenditure growth of 12% is more than double the anticipated global rate of 5% and will make India the third-largest consumer market by 2025’ (The New Indian: The Many Facets Of A Changing Consumer dated April 2017)

Nifty FMCG Index

The NIFTY FMCG Index is designed to reflect the behavior of FMCGs Indian companies from the (Fast Moving Consumer Goods) (FMCG) sector. It includes companies that deal with those goods and products, which are non-durable, mass consumption products and available off the shelf.

NIFTY FMCG Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value. NIFTY FMCG Index can be used for a variety of purposes such as benchmarking of fund portfolios, launching of index funds, ETFs, and structured products.

As of April 30, 2021,

Index Returns QTD YTD 1Year 5Years Since Inception

Price Return -3.75 -1.62 17.28 11.24 14.88

Total Return -3.60 -0.78 19.42 13.01 16.77

Number of constituents: 15

Companies Share in Nifty FMCG

• Hindustan Unilever Ltd.28.32%

• ITC Ltd.25.10%

• Nestle India Limited 9.47%

• Britannia Industries Ltd. 6.55%

• Tata Consumer Products Ltd. 4.92%

• Dabur India Ltd. 4.31%

• Godrej Consumer Products Ltd 4.04%

• Colgate Palmolive (India) Ltd. 3.08%

• Jubilant Foodworks Ltd. 2.92%

• Marico Ltd 2.90%

• McDowell's No. 12.49%

• United Breweries Limited 1.76%

• Procter & Gamble Hygiene & Health Care 1.51%

• Emami Ltd. 1.37%

• Varun Beverages Ltd 1.27%

NIFTY FMCG INDEX DATA (as of April 30, 2021)

The FMCG Sector - Conclusion

Though the Nifty FMCG Index has plummeted during this year, the overall sector growth outlook remains positive. As soon as the second wave of covid-19 ends, the supply chain, and distribution networks will regain the lost momentum and growth will be led by the changing dynamics of the Industry.