Good rains, pay hike & festivals augur well for retail

The fast-moving consumer goods (FMCG) sector is part of the overall consumer and retail sector. The consumer and retail sector includes FMCG and consumer durables. In the FMCG sector, the largest segment is food products accounting for 43 per cent. It is followed by the personal care segment at 22 per cent. In the food products, staples account for nearly 70 per cent, followed by packaged foods and beverages.

The FMCG sector in India is currently pegged at $45-50 billion. By 2020, this is expected to increase to $100 billion.

The factors aiding the double-digit growth in the sector are India’s huge middle class population that is growing and forms a large consumption base for FMCG products, the growth of organised retailing that makes product penetration more widespread and the higher disposable income on account of overall growth in the economy. This is further aided by the growth of e-commerce and with higher internet penetration this will only increase.

On the regulatory side, there has been relaxation in the foreign direct investment (FDI) in multibrand food retail up to 100 per cent, which will certainly help the sector. The passage of the food security bill augurs well for this sector and now with the implementation of the goods and services tax (GST) by April 2017, this sector will benefit from the various efficiencies arising from GST.

In the first quarter (April-June), the FMCG sector has witnessed modest growth in topline of about 6-7 per cent. But the margins have increased due to lower commodity prices. The outlook for the FMCG and retail industry in the coming quarters is bright, aided by good monsoon, onset of the festive season, and increase in pay of civil servants from the seventh pay commission award.

The main driver though is expected to be the growth in rural demand arising from improved agriculture performance on account of the good monsoon.

With improved consumer sentiments, the consumer durable sector, which has not done too well in the recent past, is also expected to show improved performance in the coming quarters. Many of the consumer durable retailers expect this festive season to be one of the best in the last two-three years.

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