For an investor looking to benefit from the FMCG theme, there are multiple options available. One can opt for a thematic FMCG fund that is actively managed or go for an FMCG-based ETF.
Fast Moving Consumer Goods (FMCG), a category of consumer goods, is a segment that represents goods that are non-durable products that are sold quickly and are relatively low cost in nature. These category products have relatively a shorter shelf life and need to be consumed immediately. The day-to-day items that we use from morning to evening such as milk, groceries, medicines, packaged foods, etc. all form a part of the FMCG universe. Given the nature of these products and their relevance in our daily life, they account for more than half of consumer spending.
In terms of the Indian economy, FMCG is the fourth largest sector. The sector can be broadly divided into three major segments: food and beverages which make up 19 per cent of the sector, followed by healthcare at 31 per cent, and household and personal care, which make up the remaining 50 per cent. In terms of the urban-rural industry break-up, 55 per cent of the demand is from urban while the remaining 45 per cent is rural.
Going forward, it is widely expected that the market size of the rural FMCG market is likely to grow by 14 per cent over the next four years. Even at a time when the pandemic had ravaged industries across the spectrum, FMCG supported by rural sales continued to remain on a strong footing. Furthermore, as lockdown restrictions and curbs on movement across the states eased, FMCG companies have registered robust sales.
The FMCG industry is poised to grow rapidly in the times ahead due to the growing awareness among the masses about products available; having easier access to them and changing lifestyles amongst several other factors have propelled the industry forward by leaps and bounds.
Going forward, there are two key drivers for the industry:
Ecommerce: The booming presence of the online marketplace has proved to be a major turning point for FMCG companies. Today, almost all FMCG brands have partnered with major e-commerce platforms thus making their products easily available at the doorstep. Moreover, with e-commerce, the reach of the products has improved considerably even in tier 2 and tier 3 cities. With more and more users going digital, companies today can reach a wide set of potential customers, who were earlier left untapped.
Rising Rural India: FMCG companies’ scope in rural India can be gauged from the following two stats – First, according to the World Bank collection of development indicators in 2020, rural population accounted for 65.07 per cent of the total population in India. Second, nearly half of this rural population is less than 25 years old.
Given the burgeoning young aspirational consumers in the rural space, every FMCG company is hard at improving its presence in rural India. The early sign of it is even visible in form of rural FMCG sales growth outpacing urban sales growth. With the onset of the pandemic, it has been increasingly observed that food and beverages and health and wellness categories have seen rapid growth with consumers becoming more conscious about consumption and hygiene.
An Investor Perspective
For an investor looking to benefit from the FMCG theme, there are multiple options available. One can opt for a thematic FMCG fund that is actively managed or go for an FMCG-based ETF. The country’s leading fund house, ICICI Prudential, has announced the launch of one such ETF which will track the Nifty FMCG Index. This index consists of 15 leading names from the FMCG space, making it a one-stop solution for investors wanting to take exposure to FMCG space.
Since the calendar year 2010, the Nifty FMCG TRI has outperformed the Nifty 50 Index 8 out of 11 times till 2020. The ticket size for investment here is as low as Rs. 500. The NFO opened on July 20, 2021, and closes on August 02, 2021.
by, Pankaj Mathpal, Founder & CEO, Optima Money Managers