FMCG INDUSTRY

One of the main drivers of the Indian economy is the Fast-Moving Consumer Goods
Sector. The household and personal care segment, which makes up half of the
FMCG sector's market share, is the largest in the economy and ranks fourth overall.

FMCG's primary growth drivers are income growth, lifestyle changes, increased
awareness, and easier access.

Between 1950 and 1980, there was limited investment in the FMCG sector. Local
people had lower purchasing power, which meant that people opted for necessity
products rather than premium products. Indian government was inclined towards
favouring the local shops and retailers.

Between 1980 and 1990, people wanted more variety of products which
encouraged FMCG companies to increase the availability of products. FMCG
Industry started getting traction and other companies started entering the industry.
Media industry in India also boomed during the same time which gave new
companies even more incentive to make their business profitable.

Prior to 1991, when globalisation and liberalisation occurred in India, western

apparels and foreign food products were not available to local customers. Common
people weren't very aware of brand recognition. After 1991, FMCG industry was
inspired by the international companies which also allowed government intervention
to incentivise foreign FMCG companies to operate in India.
REGULATORY BODIES/ACTS AND THEIR FUNCTIONS

REGULATORS /
FUNCTIONS
ACTS
- Establishes the Central Consumer Protection Authority (CCPA)
to enforce consumer rights . - Introduces regulations for e-commerce
Consumer
platforms to ensure fair trade and grievance redressal . - Strengthens
Protection Act, 2019
Consumer Dispute Redressal Commissions (CDRCs) at district,
state, and national levels.
- Ensures accurate declarations of weight, quantity, price, and
Legal Metrology dimensions on product packaging.- Mandates inspection and
Act, 2009 verification of weights/measures used in trade.- Imposes penalties
for non-compliance.
- Establishes the FSSAI for regulating food safety.- Requires
Food Safety and licensing and registration of food business operators.- Sets
Standards Act, 2006 standards for food quality, hygiene, and labeling (ingredients,
nutrition, expiry dates).
- Trade Marks Act, 1999: Protects brand names, logos, and
Intellectual Property symbols.- Patents Act, 1970: Protects inventions and innovations.-
Rights (IPR) Laws Copyright Act, 1957: Safeguards packaging designs, ads, and
creative content.
- Requires environmental clearances for factories/production units.-
Environment
Regulates waste management and pollution control (air, water,
Protection Act, 1986
soil).- Enforces compliance with environmental safety standards.
Plastic Waste - Introduces Extended Producer Responsibility (EPR) for plastic
Management Rules, waste.- Mandates collection, disposal, and recycling systems.-
2016 Bans certain single-use plastics to reduce environmental harm.
-The PLI scheme for white goods (ACs and LED lights) aims to boost
Production Linked
manufacturing and employment. The scheme has approved
Incentive (PLI)
investments worth US$ 814 million, expecting to create significant
Scheme:
employment opportunities.

National Policy on -This policy targets the production of one billion mobile handsets
Electronics 2019: by 2025, with a significant portion intended for export.

-Encourages self-reliance and promotes local manufacturing,

contributing to the government’s vision of an Atmanirbhar Bharat
Make in India
(self-reliant India).
COMPOSITION

The Indian FMCG (Fast-Moving Consumer

Goods) industry is primarily composed of
three segments: household and personal
care, healthcare, and food and
beverages. Household and personal care
products constitute the largest portion,
accounting for 50% of the sector's sales,
followed by healthcare at 31-32%, and food
and beverages at 18-19%.

Market Size and Projected Growth Rate of FMCG Industry in India

1. Over the past 10 years, the FMCG industry's revenue in India has been
growing at a rate of 21.4%.
2. The sector’s revenue increased significantly from US$31.6 billion in
2011 to US$52.8 billion in 2017–2018.
3. The FMCG industry is expected to grow at a CAGR of 27.9%, reaching
US$103.7 billion by 2020.
4. The rural FMCG market is projected to grow at a CAGR of 14.6%,
reaching US$220 billion by 2025
5. Urban India contributes to 55% of the total FMCG revenue, while rural
India accounts for 45%.
6. Over 65% of India’s population resides in rural areas, where consumers
spend approximately 50% of their total expenditure on FMCG products.
Top FMCG Companies

 Hindustan Unilever (HUL) and ITC are the clear leaders in terms of market
capitalization, both above ₹5 lakh crore.
 Nestle also holds a significant position but trails the top two by a notable
margin.
 Varun Beverages saw the largest drop in market price among all listed
(−3.11%).
 Britannia Industries showed the highest gain in market price (+0.49%).

Investments/Developments in FMCG Industry

The Indian government has permitted 51% of Foreign Direct Investment (FDI) in
multi-brand retail and 100% of FDI in food processing. This would inspire more
product launches while increasing employment, supply chains, and consumer
spending.
From April 2000 - June 2018, the Indian FMCG industry saw a healthy FDI inflow of
US$ 13.63 billion. The following are some recent developments in this industry:

 Patanjali Foods plans to invest millions in several food parks in Maharashtra,

Madhya Pradesh, Assam, and Andhra Pradesh.

 In addition to investing in capacity expansion, Dabur intends to buy

businesses in its home country.

 The RP-Sanjiv Goenka Group established a $1 billion venture capital fund to

invest in FMCG start-ups.

 Future Consumer Ltd. and Fonterra have announced a joint venture to

produce various dairy products for consumers and restaurants.

SWOT ANALYSIS

Strengths

1. Large Consumer Base: Diverse and growing population with varying

preferences allows for wide product targeting.
2. Strong Growth: Industry grew 12.2% in April–June, showing steady
improvement driven by rising consumption.
3. Tech Advancements: Tech-driven supply chains, marketing, and operations
enhance efficiency.
4. E-Commerce Boom: Online platforms expand reach and convenience for
consumers.
5. Brand Loyalty: Established brands enjoy trust and ease in launching new
products.

Weaknesses

1. Distribution Issues: Rural logistics and digital access remain challenging.

2. Counterfeits: Fake products hurt brand trust and revenue.
3. Price Sensitivity: Many consumers prefer low-cost options, affecting profit
margins.
4. Market Fragmentation: High competition from regional players limits
scalability.
5. Regulatory Complexity: Navigating multi-level regulations is time-consuming
and costly.
Opportunities

1. Rising Incomes: Household spending to cross $3 trillion by 2027; big

potential for market capture.
2. Urbanization: Easier access to consumers and retail expansion in urban
areas.
3. Global Investments: FDI brings capital, innovation, and global practices.
4. Product Innovation: Diverse market supports new product development via
R&D.
5. Government Support: “Make in India” and similar schemes boost local
manufacturing.
6. Digital Growth: Tech adoption enhances operations, marketing, and supply
chain.

Threats

1. Seasonal Demand: Sales fluctuate due to seasonal and preference changes.

2. Intense Competition: High pressure on price, quality, and innovation.
3. Regulatory Burden: Strict compliance needed for safety and quality.
4. Supply Chain Risks: Disruptions from geopolitical or cost issues affect
operations.
5. Economic Volatility: Inflation, currency shifts, and spending changes can
impact growth.

Outlook for the Indian FMCG Sector in FY26

1. Improving Macroeconomic Environment

o The negative effects of high inflation, sluggish urban demand, and
expensive raw materials are beginning to ease, creating a more
favorable business environment for FMCG companies.
2. Rural Demand Recovery
o Rural consumption is expected to pick up, supported by expectations of
a normal monsoon, which typically leads to higher rural income and
improved spending patterns.
3. Policy Support Through Union Budget
o Tax benefits and pro-consumption measures announced in the recent
Union Budget are likely to enhance disposable income and stimulate
demand, particularly for essential and discretionary consumer goods.
4. FMCG Index Performance
o In the past month, the Nifty FMCG index has increased by 2.6%, even
as the broader Nifty50 index declined by 1.7%.
o This relative outperformance suggests that FMCG stocks may be
perceived as a defensive investment during uncertain market
conditions.
5. Slower Than Expected Recovery in Volumes and Margins
 o Despite improving conditions, the sector is projected to witness only a
gradual recovery in sales volumes and operating profit margins.
6. Earnings and Valuation Adjustments
o Due to the slower recovery outlook, analysts have revised earnings
per share (EPS) estimates for FY26 and FY27 downward by up to
4.5%.
o Target price-to-earnings (PE) multiples have also been slightly
reduced in response to weak investor sentiment and market conditions.
7. Revenue and Profit Growth Projections
o Sales for companies covered in the report are projected to grow by
9.6% in FY26, compared to 6% in FY25.
o EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization) growth is expected to improve significantly from 1% in
FY25 to 13.5% in FY26.
8. Historical Underperformance of the Sector
o Over the past five years, the Nifty FMCG index has underperformed
the broader market.
o The sector has seen muted growth in recent quarters, with Q4 FY25
also expected to be weak, further dampening investor sentiment.