FMCG Industry in India Registers Impressive Growth: A Boon for Investment

The Fast-Moving Consumer Goods (FMCG) sector in India has showcased remarkable resilience and growth in the recent June quarter, according to the latest estimates released by NIQ India (formerly NielsenIQ). The quarter witnessed a substantial 12.2% value growth, driven by a confluence of factors such as easing inflation and promising signs of recovery in rural areas. This growth percentage was notably 1.3% higher than the same quarter last year and 2% higher than the preceding March quarter, indicating a positive trajectory for the industry.

One of the most notable aspects of this growth story is the volume expansion. The FMCG sector saw a significant 7.5% volume growth in the June quarter, marking the highest rate observed in the past eight quarters. Rural markets, in particular, stood out with an impressive 4% volume growth, a substantial improvement compared to the mere 0.3% growth seen in the March quarter and a significant turnaround from the -2.4% contraction witnessed in the same quarter of the previous year. Urban areas also experienced a surge in growth momentum, recording a robust 10.2% volume growth, effectively doubling from the 5.3% recorded in the previous quarter.

NIQ India's analysis of the quarter's performance highlights it as the most promising period in the last year and a half, exhibiting positive growth trends across all vectors. The moderation of India's inflation rates and a decline in food inflation have fostered consumer confidence and increased spending, which is evident in the thriving retail channels across the country. This positive trend in price growth, particularly within food categories, is expected to resonate throughout the buildup to the festive season, further stimulating consumer engagement.

Food categories emerged as the drivers of consumption growth within the sector, with an impressive 8.5% volume increase compared to the previous year. Among these categories, staple and impulse items notably propelled the overall sector growth. Interestingly, consumers in urban centres demonstrated a propensity for habit-forming categories, signifying a return to familiar choices.

The revival of consumption in rural areas bolstered non-food categories, contributing to a substantial 5.4% volume growth in the June quarter compared to the previous year. However, personal care categories continue to face challenges in rural regions. On the other hand, urban areas witnessed an encouraging surge in non-food category volume growth, surging from 3.9% in Q1'23 to 8.9% in Q2'23.

The distribution channels within the FMCG sector also witnessed exciting trends. Modern trade witnessed double-digit volume growth, while traditional trade experienced a commendable rise in volumes, increasing from 1.9% in Q1'23 to 6.2% in Q2'23. This resurgence in rural markets, previously grappling with opposing trends, is primarily attributed to the non-foods segment. The conjunction of this with over 21% growth in modern trade bodes well for the forthcoming festive seasons, as per Roosevelt D’Souza, Lead of Customer Success at NIQ India.

Despite an upward trend in average pack size growth, a negative trend persisted across markets, excluding urban areas. This dynamic reflects the evolving consumer preferences and the industry's agility in adapting to changing demands.

This favourable trajectory of the FMCG sector in India presents a compelling scenario for investment opportunities in India. The growth across diverse categories, along with the resilience demonstrated in both urban and rural markets, underscores the sector's potential for sustained development. As the recovery gains traction and consumer spending gains momentum, investors could find this sector a strategic avenue to explore, capitalising on India's FMCG industry's robust performance and future growth prospects.