Festivities are in the air! That’s a cliche, I know. But allow me that–Diwali is around the corner, after all. Everyone’s in a joyous, festive mood.
Diwali is typically the time when a lot of us receive bonuses. This is also the time when it is considered auspicious to buy new things. Combine these two traditions, add festive sales to the mix, and what you get is a season that FMCG companies eagerly look forward to as well.
The Indian consumption story is on the precipice of major growth thanks to higher disposable incomes and robust demand outlook. Per capita income, as well as discretionary spending, is expected to rise, according to a Deloitte and FICCI report.
The FMCG sector is touted to make for a strong investment case for the coming few years. This is driven not only by urban consumption but rural consumption as well. According to research firm Nielsen India, rural consumption in India grew by 9.7% in the previous financial year. It outpaced urban consumption, which grew at a rate of 8.6%.
During the same period, sales of FMCG companies grew by 13.5%, which is the fastest growth seen in the last 3 years. The rural market contributes to 40-45% of the revenues of FMCG companies. CRISIL Limited expects revenues from the rural segment to grow by 15-16% in the current year. All of this combined will allow the sector to grow at a CAGR of 20.6% to reach USD 103.7 billion by 2020, according to an IBEF report.
FMCG companies are experiencing this positive momentum in sales and revenues because of rising disposable incomes in rural India, a relatively good monsoon last year and increasing government spending on rural infrastructure.
Additionally, the effects of demonetisation and GST implementation are also waning. FMCG companies are also benefiting from the adoption of e-commerce, which has allowed them to sell goods online to markets they haven’t been able to capture using traditional sales methods.
All in all, investors looking to get exposure to the FMCG sector for the long-term stand to gain from the investments made today. Sounds good, but how do you go about investing in the FMCG sector?
When you think about FMCG companies, rarely do companies other than big names like HUL, ITC, Dabur, etc come to mind. There are a number of other FMCG companies that you should be investing in. And of course, even with the FMCG sector, there are many segments that you should be diversified across.
If all of this sounds like too much work, which it is, we have four different investment strategies that you can use to buy into the FMCG sector and the consumption theme at large.
smallcase FMCG Tracker
This smallcase invests solely in the FMCG sector. Companies in this smallcase comprise segments like food & beverages, tobacco, household products, batteries and personal products. Invest in this smallcase to get a pure FMCG exposure.
The Great Indian Middle Class
India has a burgeoning middle class with rising disposable income. This disposable income will be spent largely on aspirational purchases, which is why this smallcase is made up of segments like food & beverages, personal products, household products, retail, etc.
Rising Rural Demand
Since rural consumption in India has outgrown urban consumption, it makes sense to invest in companies that derive a significant part of their revenues from rural India. This smallcase is also diversified across segments like personal & household products, rural credit, home electronics, seeds & fertilizers, etc.
When you have disposable income, you want to use it to fulfil your dreams and aspirations. One way of doing that is by buying products and services of popular brands. India is actively consuming brands and this smallcase allows you to invest in companies that own these brands. Segments like retail, household products, home electronics, restaurants, etc make up this smallcase.
These are four different smallcases that allow you to invest in a diversified portfolio of stocks and take exposure to the consumption theme.