Why Should Invest in FMCG Stock? – Advantages

By Advisorymandi
22-October-2018 11:47:58 AM
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Fast Moving Consumer Goods (FMCG) stocks are basically high dividend yielding stocks. For those people, who do not know about the FMCG sector, in general, it comprises of those companies that are engaged in the production of those goods, which are consumed by the human beings in a regular basis. The stocks of the FMCG companies are known for their good performance and with the rising population and consumption-driven economy, it can be said without any doubt that the general growth outlook of this sector is quite positive. People with an appetite of earning good returns by investing for the long-term may find it profitable to invest in these stocks. Britannia Industries, Dabur India, Emami, Jubilant Foodworks, Godrej Industries, etc are some of the examples of the FMCG companies.

However, the main question that crops up here are it is simple enough to search FMCG stocks and invest in them or there is more it that meets the eye? Let try to find out the suitable answer.

 

How the FMCG Sector has Performed?

FMCG sector is one of the fourth largest sectors in the economy. Its overall market size is estimated to be in excess of Rs 2,000 billion. Growing awareness, rising disposable income, increasing overall consumption (both in the urban and rural sector), changing lifestyles, growing rural economy, rising consumption expenditure and easier are known to be the key growth drivers of the sector.

According to the Confederation of Indian Industry (CII), the FMCG sector of India is expected to grow at a Compound Annual Growth rate (CAGR) of 12-17% over the next five years. Moreover, post the Goods and Service Tax (GST), the investors are going to benefit a lot as the taxation on the inter-state transaction has been done away. The efficient supply chain and logistics management have led to an increase in the cost efficiency of the companies that has resulted in a considerable increase in the profit margins.

As a large percentage of the people chase growth and consistent returns in their investments, then making investments in the FMCG stocks may become an attractive option.

 

Why Investing in FMCG Stocks is Advantageous?

 There are lots of prominent reasons to invest in FMCG stocks or companies, which are as follows:

 

Rising Competition

Over the years, there has been a stiff competition in the FMCG sector because of new entrants coming up with the quality products. For instance, Patanjali, which is promoted by the yoga guru Baba Ramdev has seen a tremendous success, mainly because the products have been marketed as ‘Organic’ and gone on to become a household name. To maintain their hold in the market, some of the renowned companies like Hindustan Unilever Limited (HUL) and Dabur are now devoting their attention towards manufacturing of the organic products.

One thing is for sure that the competition in this sector is going to never end as new companies will continue to enter into the market. With new products manufactured and launched every other day, it is only going to increase the valuation of the FMCG sector in the process lead to the rise in the share prices.

 

Rise in Demand

One of the main reasons for the significant rise in the FMCG sector is the increase in demand for the products, mainly in the rural sector. The government of India is coming up with the new policies and measures to make the consumer goods available in most of the rural regions of the country. As long as there is a demand for the consumer products the government rolling out new policies to improve the product distribution, particularly in the rural areas, the FMCG companies will continue to grow. Hence, keeping the FMCG stocks in your portfolio for a long period of time will ensure that you earn higher and consistent returns.

 

The rise in Start-Ups and Innovation

One of the significant developments in this sector, which was rarely seen before is the increase in the start-up culture and giving more emphasis on the innovation when it comes to manufacturing the quality products and solving customer problems. Most of the companies, mainly the start-ups are now adopting the customer-centric approach and keeping this in mind, coming up with the facilities like doorstep delivery of the products, taking care of the customer complaints through the use of technology and upgrading the research facilities to manufacture new or innovative products, etc are some of the prominent areas of focus, which is increasing the positive sentiment of the companies. The investors are always looking out to purchase shares of those companies having high growth potential. Thus, investing in the FMCG sector for a long time is beneficial because new companies and products will continue to be launched and the sector will continue to grow.

 

Conclusion

In general, investing in the FMCG stocks is a beneficial and profitable option because of the excellent track record, consistent earnings robust cash flows. Investing in the FMCG sector also depends upon the term you want to make your investments grow. No matter what, these stocks must always be a part of your portfolio, keeping the long-term investment in mind.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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