How Investors Can Benefit From India's Booming FMCG (Fast Moving Consumer Goods) Sector?

How Investors Can Benefit From India's Booming FMCG (Fast Moving Consumer Goods) Sector?

Sometimes, spending on durable goods can be the parameter of economic activity.


How Investors Can Benefit From India's Booming FMCG (Fast Moving Consumer Goods) Sector?

One of the first growing sectors in India is the FMCG sector. Before diving into the subject and its discussion, the general question is, what is the meaning of FMCG? 

First Moving Consumer Goods is the answer. It is also known as the packaged goods of the consumers which have a faster mechanism, which means that goods are sold quickly and also, have a low price.

According to the Indian economy, the FMCG sector is the fourth largest sector which gives huge turnover and deals with consumer packaged goods. If we have a further look at the Consumer Goods, then we can find that this type of goods has three parts in itself, they are Durable goods, Nondurable goods, and Services. Going to the deep, the things which last at least three years will come under the Durable goods like furniture, vehicles, etc.

Sometimes, spending on durable goods can be the parameter of economic activity. In the case of nondurable goods, the things which last a lifetime of one year or less come under this category. In the case of Fast Moving Consumer Goods, it will apply to nondurable goods.

For example, the daily usable things like tooth pest, toilet rolls, or this kind of thing come under the FMCG which has a short life span, and in the views of retailers or manufacturers the items have fewer profit margins but the selling quantity is huge.

Pharmaceutical products occupy one of the largest portions of this sector. Some of the companies that dominate this sector from the beginning like Hindustan Uniliver, Dabur, Colgate, Himani but there is a lot of potential for the newcomers in this sector. 

If we have a look at this sector demographically then there are two parts. The first applies to the urban population and the second is to the rural population. The urban population has contributed more than 60 percent to India. This is near about a $28 billion market size.

The size of the semi-urban and rural area market is also vast which contributes about 40 percent to the sector. Recently the owners and the investors in this sector witnessed the growth of the rural area’s consumptions. 

This indicates that apart from the urban areas, the rural areas have lots of growth potential. If a company focuses only on the rural population then it can capture a large number of consumers. If we look at the present condition of the rural FMCG business then we can find that the companies generate more than 44 percent of their revenue from here. 

There is a huge demand for packaged goods like skincare, fabric care, packaged products like tea bags, or ready mix coffee or instant noodles in both rural and urban areas. And this product grows continuously. For the busy schedule of the urban areas, there is a huge demand for packaged foods and soft drinks. So basically the FMCG sector has an impression on the lifestyle of the people.
    
The FMCG sector overall look indicates the condition of the economy and the lifestyle of the people. With the higher rate of urbanization, this sector is increasing at the same rate and sometimes at a double rate. The development schemes of the government have an upward push on the middle class and the upper-middle-class people of Indian. And their lifestyle changes rapidly. 

For example, 10 years before the concept of the Smartphone was a luxury but now smartphones and the internet have become an integral part of our life. This concept is also applicable to everyday products, which is why the FMCG sector has huge growth in its revenue collection. If we look at the data of 2019 then the revenue earned by this sector is more than $52 billion and in 2020 it reached 102. 

This indicates the consumption of India increasing at the fastest rates ever. Coming to the role of the government, in recent years, the government also plays a significant role to promote this sector. For example, the government allows 100 percent foreign direct investment in SBRT and the cash carry model to retail. But there is a bar the foreign companies to invest in this sector of India, that is the company should have a minimum capital of $100 million. In some cases, it is also justified. 

In the case of implementation of GST, the government has set the bar for the highest-selling FMCG products to 18 percent slab previously which was under 24 percent slab. So in the end it can be said that investing in the FMGC sector can be fruitful for the new company as well as the old. And the Indian market will witness huge growth in the next five years, so foreign companies should also dive into this fastest-growing market.

 

Edited By Team CLIQTAX

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