With every other economic logic falling like a pack of cards, it is only India's consumption story that holds some water. And the FMCG sector has been a testament to that. However, as the Indian economy courts one challenge after the other, even a defensive sector like FMCG has started feeling the heat.
Among the various challenges, inflation has been the biggest letdown for the consumption story. And the steep consumer inflation has impacted the consumption trends across income groups. Not just pricing pressure but even volume growth seems to have now taken a back seat for FMCG companies.
As per an article in Business Standard, the FMCG companies are witnessing growth pressures, though with a lag. Further, among the various FMCG companies barring Britannia, most of the FMCG companies are witnessing slowdown in its volume uptake. Especially, the companies that have portfolio of discretionary items like exotic creams, lotions, packaged foods, etc are facing more pressures. This is because of increasing costs on various necessities, most of the households are now cutting down costs on these items.
Some time back, even billionaire investors like Buffett and Soros had raised concern over the consumption story. Of late, the performance of American FMCG giants like Johnson & Johnson, Procter & Gamble and Kraft Food had disappointed these veteran value investors. We believe India too is entering in similar phase where consumption is slowing down.
So what do these events indicate to the investors?
Though FMCG sector is considered to defensive one, investors should take cautious decision while investing in FMCG stocks. This is because few FMCG companies will have a competitive edge over the others. Moreover, investment decision should not be based on near term demand scenario. One should choose the companies that have long term growth prospects. As only those companies will prosper that have enduring growth drivers.
To conclude, India's consumption story has slowed down as against coming to a complete halt. However, investors would do well to not speculate on such broad economic trends.