Top FMCG Stocks in India: A Detailed Analysis!

Current Scenario of the FMCG sector stocks

Abbreviated as FMCG, Fast Moving Consumer Goods constitute the fourth largest among India’s diverse economic sectors. FMCG stocks India, just like in other countries, are often regarded as the ‘barometer’ of consumer demands in the current market.

FMCG in India is a large sector that is categorized into three broad divisions – 

(i) Food & Beverages, making up to 19 percent, 

(ii) Healthcare constituting about 31 percent, and 

(iii) Household & Personal care building a 50 percent of FMCG shares in India. 

The rapid boom in e-commerce, market research studies and audience segmentation has contributed vastly to making FMCG stocks among the best consumer stocks in India. As a result, the current scenario of best FMCG stocks has seen major growth with key drivers being growing awareness, ease of accessibility, and lifestyle changes.

Further, the present trends of FMCG sector stocks are such that the urban segment makes a contribution of about 55 percent of revenues of FMCG companies while the remaining 45 percent is dominated by the rural segment. 

Another aspect of FMCG stocks is that the consumer staples have been underperforming in the last couple of years, bearing the brunt of unprecedented material costs. Additionally, restrictions imposed during the deadly COVID-19 pandemic saw urban centers reeling under disruptions in Modern Trade (MT) channel, leading to lower premium product sales.

Whereas Modern Trade had marked a rebound in the last few months nearing normalcy due to the gradual lifting of COVID-19 norms, the ongoing geopolitical crisis has sped increasing material costs. Several companies who had already responded with sharp price hikes till Q3FY22 by slowing rural and bottom-of-pyramid demand are worried about the incoming higher rise in commodity costs.

Things to Know While Choosing to Buy the Best FMCG Stocks in India 2022

Present Financial Performance of FMCG shares in India

First and foremost while selecting to buy the best FMCG stocks, as an investor you must have a foundational understanding of the company’s present financial performance. A seasoned investor will always look at the company’s profit margins, its revenue model, return on equity, and other vital metrics before finalizing investment plans for the same. 

If a company records low revenue and high-profit margins, it might prove to be a good investment in the future. Similarly, if any company has considerably been increasing its revenue by 20 percent annually in the last three years, it is an indication it will continue the trend for some time and you can choose to invest in them.

If a company decreases its revenue annually by 5 percent in the past three years, it might be a warning sign that its finances and resources are struggling to grow by acceptable standards.

Future Growth Forecast of FMCG stocks

Investors choose FMCG shares in India so that they can reap the maximum profits in the future. Therefore, it becomes extremely vital to consider the future growth prospects while picking stocks to buy. 

Ideally, the investor should research about FMCG sector stocks and outline the companies that have shown high growth potential. This will ensure the chosen company will generate huge profits in the future, thereby significantly increasing its share prices.

Brand Equity and Market Share of FMCG stocks in India

Brand equity and market share of FMCG stocks are two very important factors that can help you to determine whether or not the company is able to sustain its current growth rate consistently for the long term. 

In order to check for reliability of such FMCG shares in India, the investor must see that the company has a great brand image among its immediate target audience while its market share should be such that it is able to maintain the consistent figures over time. 

Some of the best FMCG stocks in India 2022 to buy are companies that are focused on building proper customer loyalty for retaining customers during the market’s bad times.

Valuation Ratios of FMCG stocks

Valuation ratios of the best FMCG stocks are used for analyzing the attractiveness of a company’s shares. They can be used in order to determine if the stock is undervalued or overvalued at the given time of purchase. 

Valuation ratios assist investors to identify buying opportunities during market phases like downturns, sell-offs, and price drops that are significantly very below their overall intrinsic value. 

Sometimes, when an economic recession or panic selling market conditions prevail due to unexpected news events, the valuation ratio of stocks tends to landslide. All these conditions must be kept in mind while deciding to purchase FMCG shares in India.

Portfolio Diversity in FMCG products

The best FMCG stocks in India are those whose products have a diverse portfolio, with products differentiated from each other having solid brand equity. With a strong portfolio diversity, companies have an edge over others within the same sectors.

Supply Chain Management of Consumer companies

While a seasoned investor knows that supply chain management is a company’s procedural flow of managing raw materials in the manufacturing stage, it is crucial that they understand how any company’s supply chain remains constantly efficient. 

This will ensure investors to have surety that there will not be losses from investing in the FMCG stocks due to shortage of raw materials and finished products. 

Distribution Network of FMCG companies in India

A well-managed distribution network helps in the smooth functioning of the company to reach out to the maximum target audience and earn better profits through higher sales. An investor must look out for the distribution network of the FMCG shares in India to have an overview of smooth sales so that it can reap greater market share for the company.

Upsides of Holding FMCG Stocks in India

There are multiple reasons an investor must hold FMCG stocks in India, some of which are discussed below:

Growing Demand for Consumer stocks

The best FMCG stocks in India are growing at a greater pace than before because of the country’s huge 1.3 billion population, accounting for about 16-17% of the global population. Also, there has been an addition of a whopping 60% from the rural population owing to its increasing consumption expenditure in the past couple of years. 

It is predicted that as long as upgradation of government policies for rural areas and the speeding of the industrialization process continues, FMCG shares in India will grow in valuation, thus offering major returns to investors.

Abundant Competition in FMCG stocks

The FMCG stocks in India have been witnessing abundant competition in the last few years as several new entrants in the market such as Patanjali have grown exponentially thus compelling market leaders like Dabur, ITC, Hindustan Unilever Limited, to launch newer products across

various segments. The more the consumption goods rise, the greater value it will create for FMCG stocks in India.

Innovation Model in FMCG sector stocks

The FMCG sector stocks have recorded the most interesting development in terms of continuous development and innovation. The FMCG sector fueled by start-ups is launching all-inclusive services and products catering to different needs of the current generation facilitated by door-to-door delivery and online shopping thus fulfilling the company’s needs to rely on internal funds. 

This rigorous innovation model has given massive returns at a CAGR of 17% despite severe blows from demonetization. Due to this, the FMCG shares in India have given positive returns to their various investors in less than two years with the BSE FMCG Index peaking at 40%.

List of FMCG Companies You Can Invest in 2022

(Data as of November 25, 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares.