The FMCG industry has been the darling of the stock market for quite a few years now. This has been the case because investors were flocking to the relative safety of a resilient consumption industry even as other sectors choked under the strain of high interest rates and rising inflation.
Though the economic growth has slowed down, rural incomes have continued to grow at a decent pace. The rising disposable income bodes well for consumption-oriented sectors like FMCG. The sector tends to attract investors' attention in times of uncertainty because the former's products are purchased throughout the year.
Over the past year, high inflation, lower salary growth and weak job market has hurt the consumption of urban India big time. This has prompted the FMCG companies to change their strategy. Which is why they increasingly betting big on rural areas to increase their sales!
There are several reasons for this. The growth in rural India is outpacing the growth in urban India. This growth is coming from social schemes being run by the government. These schemes have pushed more money in the hands of people, leading them to go out and consume more. Because they are marginal people and there is a lot of pent-up desire to consume. As such, when they get money they don't actually save it, they consume it. That has driven the bottomlines of all FMCG and rural serving companies.
With the population of rural India being twice that of Western Europe, the Indian rural FMCG market is something no one can overlook. The above average rainfall this year is expected to boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain as well. Further, due to the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if these companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future.