The consumption sector contributes significantly to the Indian economy, and companies producing everyday products, such as those in the FMCG (Fast Moving Consumer Goods) sector, are a crucial part of it.
Why are the FMCG and consumption sectors suddenly in the spotlight? Does this indicate a golden opportunity for investors? Let’s understand the situation.
What’s Happening?
A survey conducted by the Statistics Ministry revealed that rural India’s per capita monthly household consumption increased by more than 40% from 2011-12 to 2022-23, considering inflation. Many experts believe that the new coalition government could positively impact FMCG companies.
Another reason for the focus on the consumption and FMCG sectors is the IMD’s forecast that the monsoon (June to September 2024) will be better than average, indicating more rainfall. This will benefit the rural economy, positively impacting the FMCG sector.
Revival of the Rural Economy
Since COVID-19 pandemic, the rural economy has been under pressure due to reduced income, inflation, unemployment, and declining agricultural activities. There has been no improvement in demand from non-urban areas since 2020. However, with an improved monsoon and expected changes in government policies, this trend is anticipated to change this year.
This year, the monsoon is expected to be better than average. Improved agricultural production and reservoir water levels could significantly benefit the rural economy. This will increase farmers’ incomes, reduce inflation, and rejuvenate the rural economy.
What’s in it for Investors?
Over the past year, sectors like FMCG and consumer durables have underperformed compared to market benchmark indices like Nifty and Sensex. This was due to low demand in rural areas, poor weather conditions, and reduced agricultural income, which affected production. Additionally, inflation caused the rural economy to slow down.
However, signs of gradual improvement are appearing. Better monsoons and efforts by companies to increase sales are expected to boost rural demand. The new government may introduce policies focusing more on rural areas, increasing demand and benefiting the FMCG and consumption sectors.
What’s Next?
Previously, the government primarily focused on infrastructure, but this time, it is expected to emphasise boosting consumption, directly benefiting FMCG companies.
According to Mint, during NDA government’s third term (Modi 3.0), the FMCG and consumption sectors may attract investors’ attention. Since the new government took office, there has been a surge in FMCG stock prices. This is attributed to the anticipation that the new government will implement policies promoting rural development and consumption, which may be reflected in the budget to be presented in July.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
