Why India’s FMCG Sector Struggling Despite Strong Market Growth?

What Is India’s FMCG Industry

Think about the things you use every single day: the toothpaste you use in the morning, the dal and rice you have for lunch, the soap you bathe with, and the biscuits you snack on. These are all Fast-Moving Consumer Goods (FMCG). This industry is a huge and vital part of India's economy, like a backbone that supports our daily lives.

It works through a massive network, from the kirana store in your neighbourhood to big supermarkets like Reliance Smart and DMart, and now, super-fast delivery apps on your phone. While cities are where most of the sales happen, India's villages are becoming more and more important as people there start earning more and wanting better products.

The industry is also changing. People are now often choosing to buy more expensive, higher-quality products (a trend called premiumisation). For example, instead of a basic soap, someone might buy a charcoal-infused face wash. And with the rise of apps like Zepto, Blinkit, and Swiggy Instamart, you can get your groceries delivered in 10-20 minutes (this is called quick commerce).

But even with all this potential, the industry is facing some tough times. Let's break down why.

How Big Is the FMCG Sector in India and Why Does It Matter?

The Fast-Moving Consumer Goods (FMCG) sector is one of the biggest and most important parts of India’s economy; it’s the fourth-largest sector overall. It includes products we use every day, such as:

• Food and beverages (19% of the sector)
• Healthcare items like medicines and supplements (31%)
• Household and personal care products like soaps, shampoos, and cleaning supplies (50%)
  This sector plays a key role in the country’s economy. Just the food and beverage segment alone makes up around 3% of India’s GDP.

Most of the FMCG sales (about 65%) come from cities and towns, while rural areas contribute 35%. However, rural markets are expected to drive more growth in the future as incomes and access improve.

The NIFTY FMCG Index is used to track how well major FMCG companies in India are performing.

How Do HUL, ITC, Nestlé, and Other FMCG Giants Lead the Indian Market

The Indian FMCG landscape is dominated by a mix of domestic and international players. Some of the key companies include ITC Ltd., Hindustan Unilever Ltd., Nestle India Ltd., Tata Consumer Products Ltd., and Britannia Industries Ltd. These companies have a significant weightage in the Nifty FMCG Index. These companies lead across segments:

Hindustan Unilever: A market leader in household and personal care, with brands like Dove, Surf Excel, and Lifebuoy.

ITC Limited: A diversified giant with a strong presence in food and beverages (e.g., Aashirvaad, Sunfeast) and personal care. ITC has announced a Rs. 20,000 crore capex plan to expand its FMCG and paperboard businesses.

Nestlé India: Dominant in food and beverages with brands like Maggi and Nescafé.

Dabur and Emami: Key players in healthcare and personal care, focusing on Ayurvedic and natural products. 

These companies leverage extensive distribution networks, particularly through India’s 12 million kirana stores, which account for 80% of FMCG sales, to reach both urban and rural consumers.

Why Are FMCG Profits Falling Even as Revenues Grow in India

The financial outlook for India’s FMCG sector in 2025 reflects a mix of steady growth and ongoing challenges. According to CRISIL, the sector is expected to see 7–9% revenue growth in FY25, largely due to a recovery in rural demand. However, recent trends show that this growth isn’t entirely volume-driven.

Rural markets showed better performance, with 8.4% volume growth, although slightly down from 9.2%. In contrast, urban growth slowed to 2.6%, compared to 4.2% earlier, pointing to a cooling in city-based consumption.

Among major players, Hindustan Unilever (HUL), India’s largest FMCG company with a market cap of ₹5.42 lakh crore, posted ₹63,121 crore in revenue. However, its five-year sales CAGR was a modest 9.67%. For Q3 FY25, HUL is expected to see a 2% dip in profits, mainly due to sluggish urban demand.

ITC, with a market cap of ₹5.23 lakh crore, recorded an 8.9% sales CAGR and offers a 3.4% dividend yield. Still, it faces margin pressures due to rising costs.

Nestlé India reported a 5.2% drop in Q4 FY25 net profit, bringing it down to ₹885 crore, even though its Return on Equity (ROE) remained high at 83%.

Other leading FMCG companies like Marico, Dabur, and Britannia are also witnessing muted profit growth, with PAT CAGR of 9.71%, 3.75%, and 9.33% respectively.

The sector as a whole is dealing with high commodity prices, negative operating leverage, and inventory corrections by large retailers like Reliance. As a result, HDFC Securities projects a 6% decline in profitability for Q3 FY25.

On a positive note, relief may be on the horizon. With commodity prices expected to soften, margins could improve in Q1 FY26, giving companies some breathing room.

What Are the Biggest Challenges Facing India’s FMCG Sector

While the NIFTY 50 Index has recovered strongly, the BSE FMCG Index (up just 1.48% in 2024 compared to the Sensex’s 8.16%) has lagged, reflecting sector-specific challenges. Here are the key reasons:

1. Inflation and Price Hikes: Companies have had to raise prices to offset rising input costs, leading to reduced consumption, particularly in rural markets where price sensitivity is high. In 2022–23, inflation drove the 2.5% volume growth despite an 8.5% revenue increase, as consumers cut back on non-essential purchases.
2. Sluggish Rural Demand: Rural markets, accounting for 35–45% of FMCG sales, have seen slower growth compared to urban areas due to economic constraints, unseasonal weather, and poor harvests. The March quarter’s 8.4% rural volume growth, while better than urban’s 2.6%, was a slowdown from 9.2% in the prior quarter.
3. High Commodity Costs: Rising costs of staples like edible oil (up 5.6% in the March quarter) and other raw materials have eroded margins, forcing companies like HUL and Nestlé to revise profit forecasts downward.
4. Urban Demand Slowdown: Urban markets, contributing 65% of FMCG revenue, are witnessing softer demand, with volume growth dropping to 2.6% in the March quarter from 4.2% previously, driven by inflation and changing consumer preferences.
5. Competition from E-commerce and Quick Commerce: The rise of e-commerce, projected to contribute 11% of FMCG sales by 2030, and quick commerce platforms like Zepto, which saw significant user growth in 2023, are challenging traditional distribution models. This shift increases operational costs for FMCG companies adapting to digital platforms.

These challenges explain why the NIFTY FMCG Index has underperformed despite the broader market’s recovery, as cost pressures and demand slowdowns weigh heavily on the sector.

What is the Future of the FMCG Sector

Despite near-term challenges, India’s FMCG sector has a strong long-term outlook, backed by structural growth and strategic shifts.

• Robust Growth: The sector is projected to grow at a 27.9% CAGR (2024–2030), reaching ₹1,07,89,290 crore by 2030, driven by rising demand and market expansion.
• Digital Acceleration: Online FMCG sales may form 11% of total sales by 2030, while quick commerce could touch ₹4 lakh crore. The online grocery market, led by players like Zepto, is growing at a 32.7% CAGR through 2032.
• Premiumisation: The beauty and personal care market is expanding at an 11% CAGR, with cosmetics and perfumes growing even faster, reflecting a shift toward premium consumption.
• Rural Recovery: Rural areas, contributing 35–45% of sales, are expected to bounce back with government support and good harvests, aiding volume growth.
• Investments: ITC’s ₹20,000 crore capex in FMCG and paperboards shows long-term confidence, with similar moves expected from other firms.

To capitalise, companies must focus on innovation, digital reach, and affordability to rebuild consumer trust and align with India’s growth path.

Conclusion

The Indian FMCG sector, valued at around Rs. 20 lakh crore, is a critical pillar of the economy but is grappling with significant hurdles. Inflation-driven price hikes, sluggish rural and urban demand, high commodity costs, and intense competition from e-commerce and quick commerce platforms have caused the NIFTY FMCG Index to lag behind the NIFTY 50’s robust recovery. Major players like Hindustan Unilever, ITC, and Nestlé are facing margin pressures and declining profits, as seen in Nestlé’s 5.2% net profit drop to Rs. 885 crore in Q4 FY25. These challenges highlight the sector’s struggle to balance affordability with profitability in a rapidly evolving market.

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