FMCG Sector Positioned for Strong Growth Amidst Economic Cyclical Tailwinds
With India’s macroeconomic stability and broad-based growth recovery gaining traction, the fast-moving consumer goods (FMCG) sector is emerging as a preferred investment theme for the coming 12 to 18 months. According to Varun Goel, Director at Nippon India Mutual Fund, staples and discretionary FMCG categories are set to benefit from structural upgrades and a rebound in rural demand.
Key Drivers Behind the FMCG Optimism
Goel anticipates a 10–12% overall earnings growth for Indian companies in FY24, attributing the FMCG industry’s attractiveness to improved volume growth, favorable base effects, and falling raw material costs. After facing margin pressure in recent years due to elevated commodity prices, FMCG companies are expected to see profits normalize as input costs such as palm oil, crude derivatives, and packaging materials stabilize or decline.
“In FMCG, especially rural staples, demand is bouncing back and the volume growth trajectory is improving,” said Goel. “With inflation moderating, we’re seeing sequential improvements in profitability.”
Revival in Rural Consumption
Rural consumption, which had been under pressure due to high inflation and weak farm incomes, is showing early signs of recovery. The turnaround is attributed to easing inflation, better monsoons, and increased government spending on rural development schemes. This is expected to lift demand for everyday essentials, beverages, and personal care products over the next few quarters.
Consolidation Opportunities Post-COVID
Additionally, Goel highlighted that the pandemic has accelerated formalization in the FMCG space. Market leaders have gained share from unorganized players due to their ability to maintain supply chains and invest in brand-building during crises. This trend is likely to persist, providing further growth leverage for established FMCG players with pan-India distribution networks.
Valuation and Investment Appeal
While the sector has traditionally traded at premium valuations, Goel believes current pricing is justified by its stable earnings outlook, improving cash flows, and strong return ratios. Investors are increasingly gravitating towards consumption-based themes, especially those with clear visibility, after a period of market rotation into capital-intensive sectors.
With structural tailwinds, rural