5 Things to Know About The Slow & Steady FMCG Sector

India’s FMCG sector is growing, as evidenced by the recent 7.5% volume growth. The sector is driven by increased consumer demand, higher essentials pricing, and an increase in employment and population.

In this article, let’s discuss the five key things you should know about the FMCG sector, including top NIFTY FMCG companies to make an investment.

1. Market Share

• The FMCG sector reached USD 167 billion at the end of 2023. Experts anticipate a 27.9% CAGR in this sector between 2021 and 2027, projecting it to surpass USD 615.87 billion.
• Of the total revenue received in 2022, 65% came from urban segments, with the remainder from the rural population.
• The Indian food processing industry’s market size exceeded USD 307.2 billion in 2022, and it is expected to surpass USD 547.3 billion by 2028.

2. Government Attention

A few years back, the central government introduced the PLI scheme as part of the ‘AatmaNirbhar Bharat Abhiyaan.’ This scheme incentivises companies to invest in local manufacturing and build Indian brands that can compete in international markets.

The government has approved Rs 10,900 crore under the PLI scheme for implementation during 2021-22 to 2026-27 in the food processing sector. Here are the salient features of this scheme:

• The scheme incentivises the manufacturing of major food product segments, such as ready-to-cook/Eat foods, processed fruits and vegetables, marine products, and mozzarella cheese.
• It covers innovative and organic products from SMEs, including free-range eggs, poultry meat, and egg products.
• Applicants must invest in plants and machinery within the first two years to qualify for the incentives.
• The scheme also supports branding and marketing abroad to help Indian brands establish a global footprint.

3. Challenges

• India’s geographical boundaries are vast. Given this, companies often face logistical challenges, from transportation to distribution. This impacts the efficiency and cost-effectiveness of supply chains.
• Despite the potential, reaching and establishing a foothold in rural markets remains challenging due to infrastructural and socio-economic barriers.
• The sector experiences intense competition from established players, new entrants, and international brands, making it difficult for companies to gain market share.
• The FMCG sector is vulnerable to inflation and volatility. The fluctuating prices of raw materials and operational costs can impact profitability.

4. Opportunities

• The integration of digital technologies is transforming the FMCG sector. From supply chain optimisation to improved customer engagement, digital tools offer many growth opportunities.
• Consumers are increasingly prioritizing health and wellness. This leads to a surge in demand for organic and natural products. FMCG companies can capitalize on this trend by diversifying their product portfolios to include healthier options.
• Utilizing big data and analytics to understand consumer behavior can help FMCG companies tailor their offerings and marketing strategies more effectively.

5. Stocks to Watch Out

As we look towards 2024, various stocks stand out for their potential and performance. Insights below:

• ITC Limited – With a diversified portfolio that extends beyond tobacco to include FMCG, hospitality, and more, ITC has shown resilience and growth.
• Nestle India – Known for its food and beverage products, Nestle India is a staple in Indian households. This NIFTY FMCG share price was trading around Rs 2,550+ in June 2024.
• Varun Beverages – As one of PepsiCo’s largest franchisees, this company has a significant hold on the beverage market.
• Hindustan Unilever Limited (HUL) – A behemoth in the FMCG space, HUL continues to innovate and expand its vast product range.

 Conclusion
The Indian FMCG sector has many opportunities to grow and evolve. Companies in this sector can integrate digital technologies to expand into untapped markets. They can focus on health and sustainability and leverage data analytics to position themselves in the market.

FMCG stocks have drawn investors’ attention because of the sector’s ability to adapt to changing consumer preferences and technological advancements. To start investing, consider Dhan.