FMCG Mutual Funds: A Smart Way to Benefit from India’s Large Consumer Market

October 13, 2023 Mutual Fund

India’s Fast Moving Consumer Goods (FMCG) sector is the largest industry in the world. The Indian economy boasts a diverse range of sectors and the FMCG industry holds a significant position as the fourth largest amongst others.

The term ‘Fast-Moving’ refers to FMCG products because of their high levels of demand, availability, and affordability. These products are readily available at practically all neighbourhood general stores and are stacked high on the shelves of supermarkets like D-Mart, Reliance Fresh, etc.

These are requirements that satisfy everyone’s everyday needs, thus while they are on the store or supermarket shelves, they quickly disappear. However, high demand and limited durability are some FMCG characteristics that help them move swiftly off the racks.

The expansion of the Fast-Moving Consumer Goods (FMCG) industry in India is fueled by consumer-oriented growth and increased prices, particularly for essential products. There are three main segments under the FMCG sector as mentioned below:

The Fast-Moving Consumer Goods (FMCG) Sector is one of the key engines of the Indian economy. The largest industry segment in the country is household and personal care, which accounts for 50% of the market share of the FMCG sector. Bed linens, cleaning supplies, kitchenware, grooming necessities, food, and other items are a few examples of these.

India’s economic story revolves around the FMCG industry, which is thought to contribute between 10% and 15% of the country’s GDP. Due to rising urbanisation, a growing middle-class population, changing lifestyles, and rising disposable incomes among consumers, the FMCG sector has been expanding quickly over time.

India’s consumer behaviour is boosting the FMCG sector…

The industry is experiencing a shift from traditional grocery stores to modern retail stores such as hypermarkets, supermarkets, and convenience stores due to rapid urbanization and increasing disposable income levels among consumers.

Given that, consumers are increasingly opting for online shopping instead of visiting traditional grocery stores due to the convenience factor associated with it and its low-cost nature compared to offline shopping options such as supermarkets or hypermarkets.

Additionally, customers’ shopping habits are impacted by the push towards sustainable products. While the majority of the contribution came from the urban sector, semi-urban and rural segments have seen significant increase during the previous 10 years.

The fast-moving consumer goods (FMCG) market in India saw double-digit value growth of 10.2% in Q1 FY 2023-24, led by stronger consumption growth, a 2.6% increase from the previous quarter, according to statistics from NIQ India (previously NielsonIQ).

[Read: Top 5 Mutual Funds That Are Betting on the Manufacturing Boom]

The Indian market for consumer durables, which is largely divided into urban and rural areas, is drawing marketers from all over the world. For the first time in the previous six quarters, both the rural and urban sectors had positive consumption growth.

The market had volume growth of 7.5%, the greatest in the previous eight quarters, and a price increase of 4.4%, the lowest in at least nine quarters.

This comes after the FMCG sector saw price-driven growth for more than two years as a result of excessive inflation. FMCG companies have also stated that volume-led growth will resume in the upcoming quarters since price-led growth has begun to slow down.

Customers are starting to open their wallets optimistically as the overall inflation rate has also decreased. By 2027, India’s consumer market is anticipated to overtake China as the third largest in the world because of rising disposable incomes among middle-class and upper-class households.

The Indian FMCG Market

The key growth drivers for the FMCG Market include favourable government initiatives & policies, a growing rural market and youth population, new branded products, technological transformations and the growth of e-commerce platforms.

Although the FMCG sector’s landscape is mostly unorganized, almost 80% of the sales still come from the local Kirana stores or general stores. However, as a result of the pandemic, the industry changed significantly, striving to organise itself better and adopt digital technology.

With higher internet penetration deleveraging digital transformation and adopting the e-commerce model, taking the e-commerce route has become a key imperative for all the FMCG sector participants, even the rural markets of the nation are becoming an integral part of this digital revolution.

India is expected to be the first country in the world where rapid e-commerce and e-grocery surpass traditional trade, which is transitioning to a bazaar model, selling primarily on price.

FMCG giants that have dominated the Indian market for decades, such as Johnson & Johnson, Himalaya, Hindustan Unilever, ITC, Lakme, and others are now competing against D2C-focused start-ups like Mamaearth, The Moms Co., Bey Bee, Azah, Nua, and Pee Safe.

While new-age D2C businesses like Mamaearth and Sugar took four and eight years, respectively, to reach the Rs 100 crore (USD 13.4 million) revenue threshold, market titans like Revlon and Lotus took almost 20 years.

The FMCG market surpassed USD 56.8 billion as of December 2022. Through 2021-2027, the FMCG market is projected to generate a total of USD 615.87 billion, growing at a CAGR of 27.9%.

The FMCG marketplace is huge and includes many leading companies, it is also one of the most attractive sectors for investors as it has high growth potential. Some of the major players in this sector include:

List of Top 10 FMCG Stocks in India 2023:

• Hindustan Unilever Ltd.
• ITC
• Nestle India
• Marico Ltd.
• Britania Industries
• Colgate Palmolive
• Dabur India
• Procter & Gamble Hygiene Healthcare Ltd
• Gillette India
• Godrej Consumer Products Ltd.

Apart from this, Emami Ltd, Bajaj Consumer Care Ltd, Parle Agro, Jubilant Foodworks, Zydus Wellness Ltd., Bata India, Tata Consumer Products Ltd., etc. are also among the market leaders in the Indian FMCG sector.

The FMCG industry is competitive and has high growth potential, offering lucrative investment opportunities. Investors who want to benefit from this evolving sector and be a part of India’s growth story may consider investing in the FMCG sector via mutual funds having a high allocation to FMCG stocks.

[Read: Diversification in Mutual Fund Portfolio-The Secret to Long-Term Investing Success]

FMCG mutual funds are a type of mutual funds that invest in companies which deal with products consumed by individuals on a daily basis. The scheme aims to invest the majority of its assets in FMCG stocks. Investors may choose the best suitable FMCG sector mutual funds from the top 5 schemes as listed below:

#1 ICICI Prudential FMCG Fund (Sectoral Fund)

ICICI Pru FMCG Fund invests in stocks of securities forming part of the FMCG sector in India. The scheme invests across market cap, and as of September 2023, it holds 72.25% allocation in large caps, 6.59% allocation in mid-caps and 8.24% in small caps.

ICICI Pru FMCG Fund – Allocation to FMCG Stocks

Data as of September 30, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

ICICI Pru FMCG Fund holds a maximum exposure of 29.04% in stocks of ITC Ltd., which is an Indian FMCG conglomerate with businesses spanning Fast Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Education & Stationery Products, Incense Sticks and Safety Matches; Hotels, Paperboards and Packaging, Agri Business and Information Technology.

The scheme also carries an allocation of 19.10% to HUL Ltd. a British-owned Indian consumer goods company with 50+ brands spanning across 16 categories such as fabric solutions, home and hygiene, life essentials, skincare, hair care, oral care, deodorants, tea, coffee, ice cream & frozen desserts, foods and health food drinks, the Company is a part of the everyday life of millions of consumers.

Along with a fair allocation to other market leaders in the sector, such as Nestle India Ltd., Britannia Industries Ltd., Gillette India Ltd., Godrej Consumer Products Ltd. and P&G Ltd., etc., the scheme’s overall allocation to FMCG stocks accounts for 78.13% of its total assets.

#2 Baroda BNP Paribas India Consumption Fund (Sectoral Fund)

Launched in September 2018, Baroda BNP Paribas India Consumption Fund invests predominantly in companies expected to benefit by providing products and services to the growing consumption needs of Indian consumers, which in turn is getting fuelled by high disposable income.

The scheme currently has an AUM of Rs 1061.58 crore and is benchmarked against NIFTY 50 TRI.

Baroda BNP Paribas India Consumption Fund – Allocation to FMCG Stocks

Data as of September 30, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

As of September 30, 2023, the scheme invests 73.08% in large caps, 13.64% in mid-caps and 10.66% in small-cap stocks.

Baroda BNP Paribas India Consumption Fund holds maximum exposure in stocks of companies like -ITC Ltd. at 8.43% and HUL Ltd. at 4.80% (leading companies from the FMCG sector who emphasize on manufacturing daily need consumer goods). Currently, the overall exposure to FMCG stocks accounts for 31.99% of the scheme’s assets.

#3 – Tata India Consumer Fund (Sectoral Fund)

Tata India Consumer Fund is categorised as a sectoral scheme that invests in a concentrated portfolio of equity & equity-related instruments of the companies in the consumption-oriented sectors in India.

Currently, the scheme holds an AUM of Rs 1642.28 crore. As of September 2023, the fund has a 45.54% allocation in large-cap stocks and 17.92% in mid-cap stocks, whereas 30.72% in small-cap stocks. Do note it has a higher allocation to small-cap stocks which are highly risky and sensitive to market fluctuations.

Tata India Consumer Fund – Allocation to FMCG Stocks

Data as of September 30, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

The scheme has an overall allocation of 29.37% to FMCG stocks. The highest exposure of 9.23% is in ITC Ltd. and 6.59% in Nestle India Ltd., which has grown exponentially over the years and is a leading brand in the FMCG space offering a variety of daily essentials for consumers.

In addition, the scheme has decent exposure to market leaders like HUL Ltd., Tata Consumer Products Ltd., Dabur India Ltd. and Jyothy Labs Ltd.

#4 ICICI Pru Bharat Consumption Fund (Thematic Fund)

Launched in April 2019, the scheme endeavours to create a portfolio by primarily investing in Equity and Equity related securities of companies engaged in consumption and consumption-related activities or allied sectors.

ICICI Pru Bharat Consumption Fund – Allocation to FMCG Stocks

Data as of September 30, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

In terms of FMCG stocks, the scheme holds a high allocation of around 8.48% in HUL Ltd. (one of India’s largest consumer goods brands). The fund also has exposure to other FMCG stocks like P&G Ltd., ITC Ltd., Bata India Ltd., etc.

The scheme has an overall allocation of 27.05% to FMCG stocks. As of September 2023, the fund has a 64.32% allocation in large-cap stocks and 8.53% in mid-cap stocks, whereas 15.13% in small-cap stocks.

#5 Mirae Asset Great Consumer Fund (Sectoral Fund)

Launched in 2013, Mirae Asset Great Consumer Fund invests in a portfolio of companies/ funds that are likely to benefit either directly or indirectly from consumption-led demand in India. The fund has 66.06% allocation to large-cap stocks, 8.11% in mid-cap stocks, and 22.87% in small-cap stocks.

Currently, the scheme holds an AUM of Rs 2642.08 crore.

Mirae Asset Great Consumer Fund – Allocation to FMCG Stocks

Data as of September 30, 2023
(Source: ACE MF, data collated by PersonalFN Research) 

The overall allocation to FMCG stocks is around 26.80%, and the highest is in stocks of ITC Ltd. The scheme also holds fair exposure to other FMCG stocks like – HUL, Nestle India Ltd., etc. It always has an allocation to Dabur India Ltd., which is engaged in the manufacturing and marketing of pharmaceuticals, Ayurvedic products, personal care, and food products. It is one of the largest companies in the FMCG sector in India with a market share of 5.5%.

Sectoral mutual funds such as FMCG mutual funds take at least a few years to reach their potential. However, investors must take a plunge into these mutual funds only after doing thorough market research and assessing their financial goals.

[Read: 5 Best Mutual Fund Types for Long-Term Investment Success]

Outlook for India’s FMCG Sector

Over the past two decades, the FMCG industry in India has undergone a remarkable transformation. The FMCG market is anticipated to reach around USD 220 billion by 2025, with a growth rate of 14.7%.

India’s consumer spending is driving the country’s FMCG industry to new heights. Rural consumption has increased, and there is an increased demand for branded products in rural India led by a combination of increasing income and higher aspiration levels.

The expanding youth population, particularly in metropolitan areas, is a significant element driving India’s demand for food services. Online portals are anticipated to be crucial for businesses seeking to expand into the hinterlands. The Internet has contributed in a big way, facilitating a cheaper and more convenient mode to increase a company’s reach.

In the coming years, the FMCG sector is poised to emerge as a digitally oriented industry due to the growing adoption of mobile analytics, artificial intelligence, and cloud technologies. In the e-commerce space, the size of the online FMCG market is anticipated to exceed USD 10 billion in 2023.

Moreover, this industry is heavily dependent on insights, consumer behaviour, preferences, and market trends. As consumers become more environmentally aware and seek out items that are produced in an ecologically responsible way, FMCG companies are expected to place an increasing emphasis on sustainability.

The Union Budget 2023-24 also includes incentives for improvements in food infrastructure R&D and innovation, which is quite optimistic for the slow expansion of the FMCG sector.

The 16% excise charge on dairy equipment has been eliminated, while the 16% excise duty on meat, poultry, and fish products has been decreased to 8%. This indicates that there are several opportunities for FMCG companies to tap into exponential growth.

[Read: The 4 Key Market Trends that Could Drive Mutual Fund Growth]

Overall, the road ahead for the FMCG market in India looks very positive, and FMCG companies operating in the country are well-positioned to capitalise on the nation’s rising consumer goods demand. For FMCG companies, however, finding the right drivers and overcoming the challenges will be key for FMCG businesses looking to navigate this fertile ground.

The FMCG sector in India is snowballing and is expected to continue growing in the coming years. India’s FMCG market stands tall with forecast growth of 7%-9% for the full year 2023.

India is a country that no FMCG player in the global market can afford to ignore, given its sizeable consumer market, which is wider than the total population of developed markets like the USA.

All things considered, The Indian FMCG market continues to rise as more people start to move up the economic ladder and the benefits of economic progress become accessible to the public. With the aforementioned developments, the FMCG sector will continue on its upward trajectory.

This article first appeared on PersonalFN here