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ROLL NO- 260459





March, 2008-10



Tables Of


Chapte Title Page No.

r No.

Declaration from student iv

Certificate from organisation v

Certificate from Guide vi

Acknowledgement vii

Executive summary viii


I Introduction

1 Company Profile

1.1 History 2

1.2 Background 3

1.3 Services 3

1.4 Financial Aspects of Company 5

2 Background of the study

2.1 Economic Analysis 7

2.2 FMCG Sector 14

Introduction 14

Industry size 16

Category And products 17

Significance of FMCG Sector 22

2.3 Need of the Study 25

2.4 Scope of the Study 26

2.5 Objective of the Study 27


II Research Methodology

1 Research design 29


III Data Processing And Analysis 30

1 Different aspects of the sector 31

1.1 Why FMCG Sector Is analysed 31

1.2 Growth prospects 32

1.3 India Competitiveness and 33

comparison with world market

1.4 Trends And players 39

2 Growth Drivers 44

Demand Side drivers 44

Supply Side drivers 47

3 SWOT Analysis 50

4 Challenges facing the sector 55

5 Porters Five Forces model 59

6 FMCG Sector During FY 08-09

6.1 Sector Performance 61

6.2 Index Performance 61

6.3 Index Comparison 62

7 Budget FY 2009-2010 Impact On


7.1 Reforms 64

7.2 Impact On FMCG Sector 65

8 Future outlook Of the Sector 66


Findings 68


Conclusion 70


Recommendation 72




Hereby declare that this project report is the record of authentic work carried out by me
during the period from 7/5/2009 to 7/7/2009 and has not been submitted to any other
University or Institute for the award of any degree / diploma etc.






This is to certify that Mr SHYAMAL KUMAR PAUL of MAEER’s MIT School of

Business has successfully completed the project work titled “SECTOARAL ANALYSIS IN
EQUITY MARKET” in partial fulfillment of requirement for the completion of PGDM
course as prescribed by the MAEER’s MIT School of Business.

This project report is the record of authentic work carried out by him/her during the period
from 5/7/2009 to 7/7/2009 . He has worked under my guidance.



Project Guide (Internal)


Counter signed by



“There is joy in work. There is no happiness except in the realization that we have accomplished
something” - Henry Ford

The making of any project requires contribution from many people, right from inception till
its completion. In my case also, there had been a few people who have made this happen. It
was not only learning but also an enriching experience.

I am deeply indebted to Mr. Bhaskar Chaturvedi (Branch manager) and Mr. Abhishek
Kothari (Relationship Manager) My company project guide of Edelweiss Broking Ltd. for
having allowed me to carry out the project successfully and guided me in every possible way.
I specially thank my college project guide Prof. Kiran Kunte for his constant guidance,
professional help and support during the course of the project.

I thank my colleagues and friends for providing constant encouragement and help. I am
indebted to them for their timely help & the enthusiasm they expressed in helping me bring
this project to the fruitful end. Finally, I am grateful to my family for their moral support
and understanding.

“Teachers open the door, but you must enter by yourself”


The Indian FMCG sector is the fourth largest sector in the economy with a total market size
in excess of US$ 13.1 billion. FMCG market is expected to rise to 33.4 billion US$ till 2015.

This report starts with a brief overview of the global and Indian Economy condition in the
past year how the global turmoil occurred and how it affected the world’s economies. It
further explains about the FMCG sector and it overview. It states the different product line in
which the industry operates. It study covers sectoral analysis of FMCG. It also states why
FMCG sector is analysed in India and what are the factors and different aspects of this
sector. This report explains the strength, weakness, threats, opportunities and several other
parameters on which the Industry can be judged.

This report also mentions the performance of this sector during the year 2008-2009, and how
the sector performed comparatively to the benchmark index. By these information an
investor can take investment decision in this sector. I have also included the implication of tax
reforms during the FY 2009-2010 and its impact on the FMCG sector.

Finally I have concluded by explaining what could be the future of this sector and also given
recommendation for different players in this sector and individual investor to invest or not in
this sector or not.

Chapter I




delweiss Capital Limited (ECL) was conceived as a public limited company on 11th
November 1995. Now the company is one of India's fastest growing integrated
investment banking companies. The Group's services include investment banking,
institutional equities, private client broking, asset management, wealth management, insurance
broking, wholesale financing and mutual funds. ECL has built strong corporate, institutional and
investor relationships backed by a research-driven approach and a proven ability to capitalize on
emerging market trends. The Company had received its certificate for commencement of
business on 16th January of the year 1996. As at March of the year 2000, ECL had acquired
Crossborder Investments Private Limited and it became as subsidiary. The Company obtained
the Futures & Options license in the year 2001. Edelweiss Securities Limited formerly known as
Rooshnil Securities Private Limited was acquired in July of the year 2002; this also converted as
subsidiary of the company. In the same year of 2002, the Crossborder Investments Private
Limited was registered as a Non Banking Financial Company. The year 2004 witnessed the
foray of the company into the businesses of commodity broking and in the year 2005 entered
into insurance advisory business. ECL Finance Limited was incorporated in the year 2005 under
the control of the company. During the year 2006, the company made NBFC registration of ECL
Finance Limited and managed the first Qualified Institutional Placement under the new
regulatory framework in India. Edelweiss Real Estate Advisors Private Limited was also
incorporated in the identical year of 2006 and the Edelcap Securities and Transaction Services
Private Limited which was earlier Tiffin Investments Private Limited were acquired in
December of the same year 2006. The Initial Public Offering of the company was successfully
issued in the year 2007 with the tune of 691.86 crore. During the year same year 2007, ECL had
obtained the Clearing Member License. As of May 2008, the company had received final
regulatory approval from the Securities & Exchange Board of India (SEBI) to start its mutual
fund business. Edelweiss Liquid Fund & Edelweiss Liquid Plus Fund was launched through its
asset management company in September of the year 2008.


Registered Address Registrars Company name - Rashesh Shah

14th Floor Express towers Link Time India Pvt Ltd Company Secretary – B Ranganathan

Nariman Point C-13 Pannalal Silk

Mumbai Mills Cmpd LBS Road Auditor - BSR Associates

40021 Bhandup West

91-22-22864400 Mumbai- 400078 Sector Name - Finance

91-22-4063618 91-022-25963838

91-022-25946969 House Name - Indian Private


1. Investment Banking

Comapany’s Investment Banking business is dedicated to providing corporations, entrepreneurs

and investors, the highest quality independent financial advice and transaction execution. Their
professionals offer a full range of services and transaction expertise, including private placements
of equity, capital raising services in public markets, mezzanine and convertible debt, mergers and
acquisition and restructuring advisory services. This company have a track record of successfully
closing more than 100 transactions to date.

2. Institutional equities

Institutional Equities – Insightful Research. Winning Strategies. In companies approach lies their
difference. In a short span of six years, Edelweiss Capital’s Institutional Equities Business (IE) has
become one of the top five domestic brokerage houses and top three derivatives desks. They are the
only brokerage on the Street with a quant desk that provides a wide product range, servicing all
investor categories. Comapnies innovative mindset, unparalleled research, agile sales teams, and
intensive execution systems have enabled us to relentlessly service our clients in newer and
different ways.
It cater to a wide clientele comprising leading domestic and international institutional investors,
including Pension Funds, Hedge Funds, Mutual Funds, insurance companies, and banks.

3. Asset management

Edelweiss Asset Management offers a range of investment products and advisory services across
the risk return spectrum to individual and institutional investors. Its close focus on client

requirements is our inspiration in designing products which offer the best opportunity for asset
growth with a constant focus on risk and preservation of capital.
Over the past 7 years they have significantly strengthened our equity product offerings to cover the
entire gamut of products. They have developed significant expertise in providing advisory services
in the alternative investments space through a deep knowledge of non traditional asset classes such
as derivatives.

4. Wealth Management

It is a specialized profession where our experts combine their efforts to meet the wealth planning,
investment, and financial management needs of individuals, families, family offices, or corporates.
Edelweiss Wealth Management takes one step closer to you, by providing an "all-in-one approach”.

Customised Financial Solutions

Advice on asset allocation and thereby creating customized financial solutions for HNWIs, NRIs,
Trusts and Corporates
Wide range of Innovative Advisory services
We offer advisory services on Structured Products, Portfolio Management, Mutual Funds,
Insurance, Derivative Strategies, Direct Equity, IPOs, Real Estate Funds and Art Funds.

5. Private Client Brokerage

The Private Client Services Group at Edelweiss is focused on providing products, strategies and
services to High Networth Individuals and Corporate Clients. We have geographic reach through
our Branches, Channel Partners & Investment Consultants in over 19 locations in India. The PCG
team has highly trained equity professionals, who act as your Equity Advisor. Our ESL Equity
Advisor proactively helps you take informed investment decisions and build a healthy portfolio.
We draw on our strong presence and industry leadership to develop a portfolio of offerings
designed to serve the spectrum of financial needs. Our main objective is to provide clients with all
the tools and services they need to reduce the administrative burdens of managing money and focus
on what you do best - maximizing your trading performance, building your business, and attracting
new sources of capital.

6. Client Advisory Services

The Private Client Services Group at Edelweiss is focused on providing products, strategies and
services to High Networth Individuals and Corporate Clients. We have geographic reach through
our Branches, Channel Partners & Investment Consultants in over 19 locations in India. The PCG
team has highly trained equity professionals, who act as your Equity Advisor. Our ESL Equity
Advisor proactively helps you take informed investment decisions and build a healthy portfolio.

Our main objective is to provide clients with all the tools and services they need to reduce the
administrative burdens of managing money and focus on what you do best - maximizing your
trading performance, building your business, and attracting new sources of capital.

Financial statements-
1. Balance Sheet

Rs. in Cr. Mar-09 Mar-08


Share Capital 37.47 37.73

Reserves & Surplus 2,076.62 1,809.27

Total Shareholders Funds 2,114.09 1,847.00

Secured Loans 243.93 130.47

Unsecured Loans 518.44 1,439.03
Total Debt 762.37 1,569.50
Minority Interest 398.3 479.82
Total Liabilities 3,274.76 3,896.32


Fixed Assets

Gross Block
Less: Accumulated 65.71 50.02
Net Block 27.82 14.52

Capital Work in Progress 37.89 35.5

Investments 14.86 7.92

Current Assets., Loans & 269.76 760.13
Current Assets

Loans & Advances 2,229.00 3,090.10

Less: Current Liabilities & 1,242.12 1,267.47
518.87 1,264.80


Rs. in Cr. Mar-09 Mar-08 Mar-07

Debt-Equity Ratio 0.48 0.64 0.49


Long Term Debt- 0.25 0.34 0.26

Equity Ratio (x)

Current Ratio (x) 2.68 2.33 2.83

Fixed Assets (x) 15.56 30.52 23.31

Inventory (x) 1.26 1.41 1.04

Debtors (x) 8.13 9.21 7.85

Interest Cover Ratio 3.44 3.22 10.33


Operating Profit 53.48 60.17 53.02

Margin (%)

Profit Before 51.52 59.5 52.01

Interest And Tax
Margin (%)

Gross Profit Margin 38.5 41.7 47.99


Cash Profit Margin 25.18 27.55 30.62


Ajdusted Net Profit 23.22 26.88 29.6

Margin (%)

Return On Capital 12.94 25.89 28.9
Employed (%)

8.64 19.2 24.45

Return On Net
Worth (%)

3. Shareholding Pattern and valuations-

i) Company

DII Shareholding (%) Face Value (Rs.) FII Shareholding (%)

1.48 5.00 9.26
No. of Employees Profit / Employee Promoter Shareholding
N.A (Lacs) N.A (%) 38.09

Public Shareholding Revenue / Employee Wages / Employee

(%) 13.70 (Lacs) N.A (Lacs) N.A

ii) Growth

1 Yr Dividend Growth 1 Yr EBITDA Growth 1 Yr Net Profit

(%) 49.67 (%) -26.49 Growth (%) -31.78
1 Yr Sales Growth % 3 Yr CAGR Profit (%) 3 Yr CAGR Sales (%)
-17.18 62.46 80.73
Q on Q EBITDA Q on Q Net Profit Q on Q Sales Growth
Growth (%) 32.15 Growth (%) 12.36 (%) 17.00
Qtry Net Profit Quarterly EBITDA Quarterly Sales
Growth (YoY) % Growth (YoY)% 23.14 Growth (YoY) %
38.58 4.64

iii) Market

% Advanced from 3 % Advanced from 52 % Fall from 3 Year

Year Low 109.37 W Low 109.37 High -74.54

% Fall from 52 W High 1 M Price performance 1 Wk Price
-15.67 (%) -5.80 performance (%)
1 Yr Price performance 3 M Price performance 3 Yr Price
(%) 61.46 (%) 5.02 performance (%) N.A

iv) Valuation

3 Yr High PE (x) 3 Yr Low PE (x) Dividend Payout (%)

73.89 6.37 12.06
EV to EBITDA (x) EV to Sales (x) Market Cap to Sales (x)
5.14 2.76 3.83


Economic Analysis

1. Global Economy – Year 2008 an overview

With failure of US economy most of the developed and developing economy of the world had been
affected a lot, as these countries were somehow related with US economy, either for trade or for
foreign exchange reserves or transaction. Even India had also become one of the victims of this
turmoil. Though India was not stuck into the trap of recession but it was highly affected with this

The above figure shows that what went wrong in the US economy and how the country reacted to
it. The figure shows, that what was the prime reason for the global turmoil and what happened at
the later stage. This figure explains that everything started with the weakness of the subprime
mortgage in USA, after that with its effect the various businesses got highly effected and later they
were standing at the stage of bankruptcy. The liquidity squeezed from the economy and then the
government started taking steps to infusing money into the market to enhance the liquidity into the
economy, basically this was done through different bailout polices being taken by the US

The Global Crisis - Immediate Impact on Global Indices.

The Indian indices -


The US indices –

(Dow Jones)

The UK indices-

2. Indian Economy – Year 2008 an overview.

Indian Economy is among one of the fastest growing economy in the World. It has registered a
robust growth rate in past few years. But weakening of U.S. Economy coupled with higher
inflation rate, higher interest rate, higher crude prices and higher commodity prices have a
reflection on Indian Economy too. Despite the vanishing foreign institutional investors (FIIs), the
Indian markets remained resilient and stayed afloat. Investors sentiments have been significantly
impacted by the US financial crisis. The tendency of investors to withdraw from risky markets has
resulted in significant capital outflow that have let to a liquidity crunch putting pressure on the
Indian stock market.

The Indian economy continues to show good health because of the strength of its domestic drivers,
like infrastructure projects, SME (small and medium enterprises) sector exports and good yielding
from the agricultural sector.

The cause behind the US economy debacle is that the US investment banks are extremely over
leveraged and solely dependent on wholesale finances. This led to their demise. But such is not the
case with Indian Banks. The common man deposits are more in India and they have the trust on the
banks, because all most all the Banks are nationalized and the depositor’s interest is highly
protected by Government of India.

In the US, the investment banks are dependent on institutional investor’s funds. These investments
are highly volatile and always search for high returns on their deposits. They look for Demand –
based investments and not time based investments. Therefore, whenever the returns from one
market start dipping, they move their investment to re-invest in those markets which would offer a
better return, or take a defensive stance until the market regains momentum.

Domestic banking in India is generally secure, especially because nationalized banking remains at
the core of the system. Even so, there exist sign of fragility and inadequacy within banking sector.
The effect of the global crisis have directly impacted some important macroeconomic variables.
Three such indicators stand out in terms of their sudden deterioration since the middle of last year:

(i)Decline in the foreign exchange reserves held by the Reserve Bank of India.

(ii)Fall in the external value of the rupee, especially vis-a-via the US dollar.

(iii)Decline in the stock market indices.

Measures taken by the RBI to stop depreciation of the Rupee led to a steep decline in its foreign
exchange reserves. Factors which also contributed to the decline were the revaluation in foreign
currencies and large scale pullout by foreign institutional investors.

Fig-1 shows how the foreign exchange
reserves, which had been increasing steadily
over the past few years, started declining after
june 2008. Not that the earlier build-up of
reserves reflected any great macroeconomic
strength, since unlike China it was not based on
current account surpluses. Instead, the Indian
economy experienced an inflow of hot money,
especially in the form of portfolio capital
investment of FII.

But the movement of FIIs was in turn related

to the sudden collapse of the rupee, shown in
figure 2. Early in March 2009 the rupee
breached the line of Rs 51 per Dollar. There
are those who argue that this depreciation is
positive since it will help exports, but
conditions prevailing in the world trade
market, with falling exports volumes and
values, does not give rise to much optimism
in that context.

India currently has a current account

deficit, including a large trade
deficit and also quite significant
factor payments abroad. The falling
rupee implies rising factor payments
(such as debt repayment and profit
repatriation) in rupee terms, which
is not good news for many
companies for the balance of

Associated with all this is the

evidence of falling business
confidence expressed in the stock market indicators. The Sensex (Figure 3) had reached historically
high levels in the early part of 2008, capping an almost hysterical rise over the previous. Three
years in which it more than tripled in value. But it has been plummeting since then,with high
volatility around an overall declining trend such that its level in early march were below the level
attained in December 2005.

Role of foreign investors

Figure 4 tracks the changes in total foreign

investment, spilt up into direct investment
and portfolio investment, over a period
since April 2007. It is evident that both
have followed by decline. FDI has been
more stable with relatively moderate
fluctuations (even though it does include
some portfolio-type investment that get
categorized as FDI). It peaked in February
2008 and thereafter it has been coming
down but is still positive.

Portfolio investment has been extremely

volatile and largely negative (indicating
net outflow s) since the beginning of 2008,
and this has dominated the overall foreign
investment trend.As a result, as is from
figure 5, the cumulative value of stock
held by FIIs fell quite sharply, by 24%
between May 2008 and February 2009.
This not dramatically changed investor
perceptions of the Indian economy, since
if anything GDP growth prospects in India
remain somewhat higher than in most
other developed or emerging markets.
Rather, it is because portfolio investors
have been repatriating capital back to the
US and other Northern markets. This reflects not so much as a flight to safety (for clearly US security
are not safe anymore either) as the need to cover losses that have been incurred in sub -prime
mortgages and other asset markets in the North, and to ensure liquidity for transactions as the credit
crunch began to bite. Whatever the cause, the impact on the domestic stock market has been sharp and
direct. Since the Indian stock markets is still relatively shallow, and FII activities play a
disproportionately sharp role in determining the movement of the indices, it is not surprising that flow
has been associated with the overall decline in stock market valuations.

As Figure 6 Shows the sensex has
moved generally in the same
direction as the net FIIs inflows. In
fact, movements in thw latter have
been much sharper and more
volatile, suggesting that domestic
investors have played a more
stabilizing role over this period.

Overall foreign investment flows

(including both FII and direct
investment) have also played a role in
determining the level of external
reserves. Figure 7 shows the patter in
aggregate net foreign investment and
change in reserves since April 2007.

Once again, the two move together.

However, in this case, foreign
investment has been less volatile than
the change in reserves, suggesting that
other components of the balance of
payments have been important as well.
The changes in external commercial borrowing are likely to be significant.

In addition, the possibility of domestic investors moving their funds out should not be
underestimated. The recently liberalized rules for capital outflow by domestic residents have led
oto outflows that are not insignificant, even if still relatively small.

FMCG SECTOR (Fast Moving Consumer Good)


Products which have a quick turnover, and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG products are those that get replaced within a year. Examples
of FMCG generally include a wide range of frequently purchased consumer products such as
toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as
other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG
may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks,
tissue paper, and chocolate bars.

Indiaʹs FMCG sector is the fourth largest sector in the economy and creates employment for
more than three million people in downstream activities. Its principal constituents are
Household Care, Personal Care and Food & Beverages. The total FMCG market is in excess of
Rs. 85,000 Crores. It is currently growing at double digit growth rate and is expected to maintain
a high growth rate. FMCG Industry is characterized by a well established distribution
network, low penetration levels, low operating cost, lower per capita consumption and
intense competition between the organized and unorganized segments.

The Rs 85,000-crore Indian FMCG industry is expected to register a healthy growth in the
coming years, despite of the global turmoil this industry proved itself as an defensive sector for
investment. The sector poised a good rate of growth. The companies in this sector sustained their
presence in the market and maintained their market share.

Market share movements indicate that companies such as Marico Ltd and Nestle India Ltd, with
domination in their key categories, have improved their market shares and outperformed peers
in the FMCG sector. This has been also aided by the lack of competition in the respective
categories. Single- product leaders such as Colgate Palmolive India Ltd and Britannia Industries
Ltd have also witnessed strength in their respective categories, aided by innovations and
strong distribution. Strong players in the economy segment like Godrej Consumer Products Ltd
in soaps and Dabur in toothpastes have also posted market share improvement, with revived
growth in semi-urban and rural markets.

A major portion of the monthly budget of each household is reserved for FMCG products. An
average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal
care products. However, the per capita income level in India is still very low compared to the
developed world. Besides, the penetration level of many products is also relatively low and
several categories remain fairly unbranded.

Burgeoning Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products. All these
factors provide a huge untapped potential for the industry.

The industry's future prospects look bright, considering rising household incomes, higher
penetration, increasing per capita consumption, a rising population base and the spread of
modern retail.

The FMCG industry is characterised by a well established distribution network, strong MNC
presence, intense competition between the organised and unorganised segments and low
operational cost. In contrast to other manufacturing sectors, FMCG is relatively less capital-
intensive, but demands immense skills and expenditure on branding and distribution.

FMCG companies maintain intense distribution network. They spend a large portion of their
budget on maintaining distribution networks and new entrants who wish to bring their products
in the national level need to invest huge sums of money on promoting brands. But the market is
more pressurized with presence of local players in rural areas and state brands.

The growth in the sector has so far been both volume and value driven. The growth has been
substantially volume driven. Also the price hikes that have happened have not been across the
board but only in a few categories and products.

The FMCG companise have also come into light on account of declining commodity prices.
While inflation restricts the industry's growth, many companies in the sector thrive under
inflationary pressures. Most companies pass on the cost inflation to consumers, via a judicious
blend of price hikes, packaged size reduction and change in product mix. Few consumers react
by down-trading to lower priced products, but most hang on to their preferred brands if price
hikes are moderate.

FMCG companies are also expected to gain from the slowdown in media sector. The intense
competition in FMCG sector makes advertising an important expense. They tend to spend nearly
10% of their revenues on an average on advertising and promoting their products, which is the
highest ad spend figure for any industry. But the advertising spends are expected to decline as
the media companies are expecting a deceleration in advertisement revenue growth on account
of the current economic slowdown and increased competition.

Most companies in the sector create value through product differentiation, package innovation,
differential pricing and highlighting the functional aspect. This adds to the brand value of the
FMCG companies. In a market where products are similar, branding can have a large effect on
the price that customers will pay. Traditionally price is determined on growth and brand value.
Though these companies traditionally trade at around 20x on account of brand valuation. Today
most of the companies are available at relatively lower valuation compared to the past valuations
in spite of improved scenario and fundamentals. Thus the intrinsic values of these companies are
understated categorizing them as “value picks”.


The Indian FMCG sector is estimated at US$ 25 billion1 (Rs. 120,000 crore), including tobacco.
It has grown consistently over
the last 3-4 years, including the
last 12 months of economic
slowdown. Unlike developed
markets, which are dominated
by a handful of large players,
India’s FMCG sector is
fragmented and a substantial
part of the market comprises of
unbranded and unpackaged

In the last 2-3 years, it has overcome a slow- growth slump to grow at between 12% - 15%,
and Exhibit I2 : FMCG Industry Category Breakup is expected to grow at a CAGR of around
12% over the next few years to reach a size of US$ 43 billion (Rs. 206,000 crores) by 2013
and US$ 74 billion (Rs. 355,000 crores) by 2018. Exhibit I provides a product wise break-up
of the sector.

It is a sector with a relatively less discretionary demand and therefore tends to be relatively
stable in the long term, though consumers do up or down trade with economic fluctuations. At
times of economic slowdown as at present, for instance, consumers may be cutting down on
durable and other capital expenditure but cannot avoid spends on daily necessities and
sometimes even be more willing to splurge in the form of little indulgences on the FMCG
products. Having stated that, a large number of FMCG products, especially those for mid and
mass markets, are price elastic (for a given price reduction, consumption increases by more
than the percentage of price reduction).

Industry Category and Products

HOUSEHOLD Fabric wash (laundry soaps and synthetic
detergents); household cleaners
(dish/utensils cleaners, floor cleaners,
toilet cleaners, air freshners, insecticides
and mosquito repellents, metal polish and
furniture polish).
FOOD AND BEVERAGES Health beverages; soft drinks;
staples/cereals; bakery products(biscuit.
Bread, cakes); soft drinks; processed
fruits, vegetables; dairy products;
botteled water; branded flour; branded
rice; branded sugar; juices etc.
PERSONAL CARE Oral Care, hair care, skin care, personal
wash(soaps);cosmetics and toiletries;
deodorants; perfumes; feminine hygiene;
paper products.


Fabric Wash market

The fabric wash market has three segments, laundry bars, synthetic detergents and powders. The
3-mn tonne market, valued at Rs 45 bn, is amongst the world's largest, after China and USA.
Laundry soaps accounts for 20 per cent of the total volumes and 15 per cent of the value.

Consumer preferences have been changing in

the past few years. In the urban markets,
people prefer to use washing powder and
detergents, instead of bars, on account of
convenience of usage, increased purchasing
power, aggressive advertising and increased
penetration of washing machines. The demand
for detergents has been growing at an
annualized growth rate of 10-11 per cent in the past five years, while the laundry bar market has
witnessed a negative growth. In the fabric wash market, the rural growth is at a higher rate of 13-
14 per cent, compared to the urban growth rate of 8-9 per cent. The major players in the

detergent market are HLL (Surf), Nirma (Nirma Super, Nima), Proctor & Gamble (Ariel, Gain,
Tide) and Henkel-Spic (Henko), with the rest of the market being fragmented amongst a large
number of players.

Personal Wash

The market size of personal wash is estimated to be around INR 8,300 Cr. The personal wash
can be segregated into three segments: Premium, Economy and Popular. The penetration level
of soaps is 92 per cent. It is available in 5 million retail stores, out of which, 75 per cent are in
the rural areas. HUL is the leader with market share of 53 per cent; Godrej occupies second
position with market share of 10 per cent. With increase in disposable incomes, growth in rural
demand is expected to increase because consumers are moving up towards premium products.
However, in the recent past there has not been much change in the volume of premium soaps in
proportion to economy soaps, because increase in prices has led some consumers to look for
cheaper substitutes.


The size of the detergent market is estimated to be INR 12,000 Cr. Household care segment is
characterized by high degree of competition and high level of penetration. With rapid
urbanization, emergence of small pack size and sachets, the demand for the household care
products is flourishing. The demand for detergents has been growing but the regional and small
unorganized players account for a major share of the total volume of the detergent market. In
washing powder HUL is the leader with 38 per cent of mar- ket share. Other major players are
Nirma, Henkel and Proctor & Gamble.


Skin Care

The total skin care market is estimated to be around INR 3,400 Cr. The skin care market is at a
primary stage in India. The penetration level of this segment in India is around 20 per cent. With
changing life styles, increase in disposable incomes, greater product choice and availability,
people are becoming aware about personal grooming. The major players in this segment are
Hindustan Unilever with a market share of 54 per cent, fol- lowed by CavinKare with a market
share of 12 per cent and Godrej with a market share of 3 per cent.

Hair Care

The hair care market in India is estimated at around INR 3,800 Cr. The hair care market can be
segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. Marico is the
leader in Hair Oil segment with market share of 33 per cent; Dabur occupies second position at
17 per cent.

Coconut Oil

The coconut hair oil market covers 72 per cent of the hair oil market. In the branded coconut
hair oil market, Marico (with Parachute) and Dabur are the leading players. However, HLL, with
its Nihar brand, is catching up through the acquisition route (having acquired the Cococare
brand). HLL is also extending its Sunsilk brand to hair oils. Marico has consolidated its position
by acquiring the Oil of Malabar brand, which has a 2 per cent market share.


The Indian shampoo market is estimated to be around INR 2,700 Cr. It has the penetration level
of only 13 per cent in India. Sachet makes up to 40 per cent of the total shampoo sale. It has low
penetration level even in metros. Again the market is dominated by HUL with around 47 per
cent market share; P&G occupies second position with market share of around 23 per cent. Anti-
dandruff segment constitutes around 15 per cent of the total shampoo market. The market is
further expected to increase due to increased marketing by players and availability of shampoos
in affordable sachets

Hair Dyes

The hair dye market is worth Rs 2 bn and growing at 30 per cent per annum. The growth is
driven by the fact that a lot of women have started looking for specialized products. Powder hair
dyes, liquid hair dyes, and hair colour, and oil-based hair dyes are the major categories of the
market. Godrej Soaps is the market leader, with a 40.4 per cent share.

Oral Care

The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent;
toothbrushes - 17 per cent. The total toothpaste market is estimated to be around INR 3,500 Cr.
The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas.
This segment is dominated by Colgate-Palmolive with market share of 49 per cent, while HUL
occupies second position with market share of 30 per cent. In toothpowders market, Colgate and
Dabur are the major players. The oral care market, especially toothpastes, remains under
penetrated in India with penetration level 50 per cent.

Food and Beverages

Food Segment

The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC,
Godrej, and others. This category has 18 major brands aggregating INR 4,600 Cr. Nestle and
Amul slug it out in the powders segment. The food category has also seen innovations like
softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej


The major share of tea market is dominated by unorganized players. More than 50 per cent of the
market share is capture by unorganized players. Leading branded tea players are HUL and Tata


The Indian beverage industry faces over supply in segments like coffee and tea. However, more
than 50 per cent of the market share is in unpacked or loose form. The major players in this
segment are Nestlé, HUL and Tata Tea.

Other Segments

Other small segments include hair creams, hair wash powders, hair soaps and hair styling gels,
where volumes are still very low.

Feminine Hygiene

The Rs 2 bn market is dominated by P&G (Whisper), with a 45 per cent market share, Johnson
and Johnson (Stayfree), with a 40 per cent share, and the latest entrant, Kimberly Clark Lever
(Kotex). These are premium products with an urban penetration level of 20 per cent. While the

market faced a negative growth last year, it got a boost from the withdrawal of excise duties.
However, growth continues to be flat.

Dish Wash

The total size of the dish wash market, estimated at Rs 3.4 bn, recorded a 40 per cent growth
over last year. Over 60 per cent of the market is dominated by bars, while dish wash powders
accounts for 32 per cent. The penetration levels are, however, still very low. Estimates show that
nearly 50 per cent of the urban population and 80 per cent of the rural one still use proxy
products like ash and other cheap detergents for dishwashing purposes. HLL is the leading
player, with its Vim Bar.


A major offshoot of the cosmetics market is the Rs 750 mn deodorant market, which is expected
to grow at 40 per cent annually. The organized segment is dominated by HLL, which has a 74
per cent market share with its Rexona, Axe, Denim and Impulse brands in different categories
targeting different segments.

Cleaners / Repellents

The cleaner market includes products like floor cleaners, air, phenyl and toilet cleaners, and is
estimated to be growing at 20 per cent per annum. The key players are HLL, Reckitt & Colman
India (RCI), Henkel Spic, Bayer India and Balsara Hygiene. The estimated market for
insecticides and repellants is around Rs 8 bn, which is growing at 15 per cent annually. It
includes mosquito coils, mats and other insecticide products. The leading players are Godrej
Sara Lee (Goodknight), which has a 38.1 per cent share followed by RCI (Mortein), with a 23.5
per cent market share. Godrej Sara Lee is the world's largest manufacturer of mosquito mats,
with an all-India market share of 66 per cent. The organized sector is trying to increase
penetration levels by higher brand visibility.

Significance and Contribution of FMCG Sector
The FMCG sector in India has played a vital role in the growth and development of the country,
from making efforts to reach out to maximum consumers through distribution of smaller pack
sizes, innovations like single use sachets, to developing innovative products to cater to regional
or local tastes and the needs of niche consumers. There are many significant contributions –
both direct and indirect that the sector has on the Indian economy.

1. Economic contribution

i) Employment

The FMCG sector is one of the larger employers in the country. The total salary outlay of the
sector on direct employment is estimated at approximately 6% of turnover, i.e. US$ 1.5 billion4
(Rs. 7,000 crores).

• There are approximately 12-13 million retail stores in India, out of which 9 million are
FMCG kirana stores. Thus the sector is responsible for the livelihood of almost 13 million

ii) Fiscal contribution

Cascading Multiple Taxes (Import duty, CENVAT, Service Tax, CST, State VAT, Octroi/Entry
Tax and Income Tax) are paid at multiple points (levied at Centre, State, City and mandis)
by the FMCG sector. On an average therefore, almost 30% (and much more for liquor and
tobacco categories) of the revenue of the sector goes into both direct and indirect taxes. At an
estimated size of $25 billion (Rs. 120,000 crores), that would constitute a contribution to the
exchequer of approximately US$ 6.5 billion (Rs. 31,000 crores).

iii) Social contribution

It is a sector which helps create employment for people with lower educational qualifications.
Many become small entrepreneurs operating their own kirana store. Along with this, FMCG
firms have also undertaken some specific projects to integrate with upcountry and rural
areas for both inputs and for distribution as well as to fulfill CSR. Some examples:

• ITC echoupal and Choupal Sagar – Choupal Sagar is ITC’s chain of rural retail which sells
both agricultural inputs and daily needs products. ITC’s rural e-network enables farmer
connectivity and provides an easy way for farmers to get better profitability and control through
access to timely information.

• HUL’s Shakti Amma network – HUL pioneered a rural entrepreneurship model amongst
women who became HUL distributors and through this status also gained stature in their local
community and now operate as entrepreneurs for other product categories than FMCG products.

• Dabur India regularly conducts rural and adult education programs and provides training in
rural areas to facilitate employability.

2. Contribution to Other Sectors

The FMCG sector has a strong impact on several other sectors of the economy – agriculture,
supply chain, ancillary industry, packaging, media.

i) Agriculture - Its intake of agricultural output as raw material is estimated to constitute

roughly 9% of total turnover for the sector. That would put its total value to agriculture at US$
2.2 billion7 (Rs. 10,500 crores).

ii) Third Party Logistics - The third-party logistics market for the FMCG sector in India has
been growing at a CAGR of 12% since 2002, and is estimated to be worth US$ 63 million8
(Rs. 300 crores). It is anticipated to double by 2011, and be worth over US$ 146 million (Rs.
700 crores) by 2012, a growth of 211% from 2002. India’s infrastructure in both transportation
and warehousing facilities has been lacking which enables the growth of independent third
party logistics (3PL)-players to come up to bridge the gaps.

iii) Ancillary Industries - Ancillary industries like manufacturing and distribution are greatly
boosted by the FMCG sector.

a. Manufacturing – Almost 9-10% of total sector’s production is outsourced to contract

manufacturing units taking the total size to $ 1.7 – 2 billion (Rs. 8,000 – Rs. 9,500 crores),

b. Distribution –

i.ITC services 1.1 million outlets at an average frequency of three days down to villages
with population of 2,000, and has 1,000 wholesale dealers.

ii. Marico reaches 1.6 million outlets, through almost 900 direct distributors, 100+ super
distributors, catering to almost 2,500 small stockists and 4,600 van markets.

iii. HUL reaches 50,000 villages through 6000 stockists, apart from 3.5 lac direct selling agents
and distributes products to a staggering 6.5 million retail outlets.

iv) Packaging Industry - The packaging industry for the FMCG sector alone is worth US$ 2.9
billion10 (Rs. 14,000 crores), and is expected to grow faster due to the growth of private label

FMCG products through both modern and traditional retailers as well as the increasing shift
from loose to packaged goods.

v) Media Industry - The media industry has a lot to gain from the FMCG sector. Around 40%
of media industry earnings from advertising (US$ 5 billion) are estimated to come from the
FMCG sector, a contribution of US$ 2 billion (Rs. 9,500 crores)11.

vi) Tourism Industry - Penetration of familiar brands across the length and breadth of the
country provides comfort and reassurance of quality to both Domestic and International tourists.
The state of availability and quality of these brands in some ways help increase the flow of
tourism in the country.


1. For undertaking the study that how a sector can be analysed.

2. For taking a proper decision of investment in this sector based on analysis of data and

3. To create a project report for those who are interested in this sector.

4. This project will help me in attaining my future goals and also help me in my carrier


1. It gave me an opportunity to understand the FMCG sector.

2. I got the knowledge of prevailing market scenario.

3. This project will be useful for those who want to conduct research in this field.

4. This project will guide those people who wants invest in this sector.

5. Investment analysis can be done for this sector based on the information in this project.

6. It could be easily be used by any layman who wants to do sector analysis.


Every study is conducted to fulfill certain objectives and these objectives fulfill some purpose.
The objectives of the research are :

1. To understand about the topic “Sectoral Analysis”.

2. To understand what parameters affects the performance of the sector.

3. To know that what parameters should be considered while making an investment in any

4. To explore the factors by considering which the investor can make the decision of entry, hold
or exit investment decision from the sector.

Chapter II


Research is a way to generate information from primary and secondary sources which can also
define research as scientific and diplomatic search for pertinent information on specific topic.

Research is systematic design, collection, analysis, and reapportion of data and finding which are
relevant to specific situation.

Research methodology is a framework, a blueprint or the research study which guides the
collection and analysis of data. Research methodology is being framed in order to achieve the
research objective. It is an expression what is expected of the research exercise in term of result
and the analysis input need to convert data into research, finding, designing a search plan call for
decision or the data sources, research approaches, research instrument and contract method.

Data Collection Method

The research methodology can call for gathering primary as well as secondary data.

Primary data is one, which is collected by investigator himself for the purpose of a specific
inquiry or study. Such data is original in character and is generated by surveys conducted by
individual or research institution. When an investigator use a data which is already been
collected by others such data is called secondary data.

Data Sources- In this project I have used basically secondary data and somewhat primary data.


1. websites-

2. Books and Journals-

i) Economic times

ii) Economy and political review

iii) Capital markets. etc




Why FMCG sector is analysed-

TATA Investment Corporation Limited, non-banking financial company registeredwith

Reserve Bank of India under the ' Investment Company' category. The company's activities
comprise primarily of investing in long-term investments in equity shares and other securities of
companies in a wide range of industries. TICL invested in almost all the sectors. TICL’s
portfolio proved to be a very successful portfolio. They had got a very good return from all the
sectors. Among these sectors, Fast Moving Consumer Goods (FMCG) proved to be a very
successful sector. It has a very good potentiality in long term in India. The overall cost of
investment in FMCG sector was Rs. 13.69 crores on May 20, 2008, this investment valued Rs.
306.72 crores i.e. the cost of value of investment in FMCG sector was 5% of the overall
investment that was increased in 2008 to 15% of the overall investment. Thus from this, we can
conclude that, there is a 2140.47% increase in value of investment. For this significant increase
and also recent development of retails shops, malls, etc. in India, the FMCG sector is one of the
booming sectors in India.


Large Market

India has a population of more than 1.150 Billions which is just behind China. According to the
estimates, by 2030 India population will be around 1.450 Billion and will surpass China to
become the World largest in terms of population. FMCG Industry which is directly related to the
population is expected to maintain a robust growth rate.

Growth Projection

Most FMCG products (non-durables) are

daily use products, and therefore, their
volume consumption has been largely
unaffected in the current economic
slowdown. The sector has coped well
with recent challenges and grew by 15%
over the last year

Spending Pattern

An increase is spending pattern has been witnessed in Indian FMCG market. There is an upward
trend in urban as well as rural market and also an increase in spending in organ- ized retail
sector. An increase in disposable income, of household mainly because of in- crease in nuclear
family where both the husband and wife are earning, has leads to growth rate in FMCG goods.

Changing Profile and Mind Set of Consumer

People are becoming conscious about health and hygienic. There is a change in the mind set of
the Consumer and now looking at “Money for Value” rather than “Value for Money”. We have
seen willingness in consumers to move to evolved products/ brands, because of changing
lifestyles, rising disposable income etc. Consumers are switching from economy to premium
product even we have witnessed a sharp increase in the sales of packaged water and water
purifier. Findings according to a recent survey by A. C. Nielsen shows about 71 per cent of
Indian take notice of packaged goods' labels containing nutritional information compared to two
years ago which was only 59 per cent.


1.Governmental Policy

Indian Government has enacted policies aimed at attaining international competitiveness through
lifting of the quantitative restrictions, reducing excise duties, automatic foreign in- vestment and
food laws resulting in an environment that fosters growth. 100 per cent export oriented units can
be set up by government approval and use of foreign brand names is now freely permitted.

2.Materials availability

India has a diverse agro-climatic condition due to which there exists a wide-ranging and large
raw material base suitable for food processing industries. India is the largest producer of
livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice,
wheat and fruits & vegetables. India also has an ample supply of caustic soda and soda ash, the
raw materials in the production of soaps and detergents – India produced 1.6 million tonnes of
caustic soda in 2003-04. Tata Chemicals, one of the largest producers of synthetic soda ash in the
world is located in India. The availability of these raw materials gives India the locational

3.Cost competitiveness

Labour cost comparison

Apart from the advantage in terms of ample raw material availability, existence of low-cost
labour force also works in favour of India. Labour cost in India is amongst the lowest in Asian
countries. Easy raw material availability and low labour costs have resulted in a lower cost of
production. Many multi-nationals have set up large low cost production bases in India to
outsource for domestic as well as export markets.

4.Presence across value chain

Indian firms also have a presence across the entire value chain of the FMCG industry from
supply of raw material to final processed and packaged goods, both in the personal care products
and in the food processing sector. For instance, Indian firm Amul's product portfolio includes
supply of milk as well as the supply of processed dairy products like cheese and butter. This
makes the firms located in India more cost competitive.


India has enacted policies aimed at attaining international competitiveness through lifting of the
quantitative restrictions, reduced excise duties, automatic foreign investment and food laws
resulting in an environment that fosters growth. 100 per cent export oriented units can be set up
by government approval and use of foreign brand names is now freely permitted.

i) FDI Policy

Automatic investment approval (including foreign technology agreements within specified

norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate
Bodies (OCBs) investment, is allowed for most of the food processing sector except malted
food, alcoholic beverages and those reserved for small scale industries (SSI). 24 per cent foreign
equity is permitted in the small-scale sector. Temporary approvals for imports for test marketing
can also be obtained from the Director General of Foreign Trade. The evolution of a more liberal
FDI policy environment in India is clearly supported by the successful operation of some of the
global majors like PepsiCo in India.

ii) Removal of Quantitative Restrictions and Reservation Policy

The Indian government has abolished licensing for almost all food and agro-processing
industries except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc.,
and items reserved for the exclusive manufacture in the small scale industry (SSI) sector.
Quantitative restrictions were removed in 2001 and Union Budget 2004-05 further identified 85
items that would be taken out of the reserved list. This has resulted in a boom in the FMCG
market through market expansion and greater product opportunities.

6. Central and state initiatives

Various states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir have
encouraged companies to set up manufacturing facilities in their regions through a package of
fiscal incentives. Jammu and Kashmir offers incentives such as allotment of land at
concessional rates, 100 per cent subsidy on project reports and 30 per cent capital investment
subsidy on fixed capital investment up to US$ 63,000. The Himachal Pradesh government offers
sales tax and power concessions, capital subsidies and other incentives for setting up a plant in
its tax free zones. Five-year tax holiday for new food processing units in fruits and vegetable
processing have also been extended in the Union Budget 2004-05.

Wide-ranging fiscal policy changes have been introduced progressively. Excise and import duty
rates have been reduced substantially. Many processed food items are totally exempt from excise
duty. Customs duties have been substantially reduced on plant and equipment, as well as on raw
materials and intermediates, especially for export production. Capital goods are also freely
importable, including second hand ones in the food-processing sector.

7. Food laws
Consumer protection against adulterated food has been brought to the fore by "The Prevention of
Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities,
encompassing food colour and preservatives, pesticide residues, packaging, labelling and
regulation of sales.

8. Large domestic market

India is one of the largest emerging markets, with a population of over one billion. India is one
of the largest economies in the world in terms of purchasing power and has a strong middle class
base of 300 million.

i) Rural and urban potential

Rural-urban profile

Urban Rural
Population 2006-07 (mn 53 135
Population 2009-10 (mn 69 153
% Distribution (2006-07) 28 72
Market (Towns/Villages) 3768 62700
Universe of Outlets (mn) 1 3.3
Source: Statistical Outline of India (2007-08), NCAER

Around 70 per cent of the total households in India (188 million) resides in the rural areas. The
total number of rural households are expected to rise from 135 million in 2001-02 to 153 million
in 2009-10. This presents the largest potential market in the world. The annual size of the rural
FMCG market was estimated at around US$ 10.5 billion in 2006-07. With growing incomes at
both the rural and the urban level, the market potential is expected to expand further.

ii) India - a large consumer goods spender

An average Indian spends around 40 per cent of his income on grocery and 8 per cent on
personal care products. The large share of fast moving consumer goods (FMCG) in total
individual spending along with the large population base is another factor that makes India one
of the largest FMCG markets.

Consumption pie

Source: KSA Technopak Consumer Outlook 2008.

Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is
amongst the largest in the emerging markets, next only to China.

iii) Consumer expenditure on food (US$ billion)

In the recent years India has shown a growth rate

of 7-8.5% per year .With the improvement of
base industries and service sector in India the per
capita income has also increased very fastly,that
increased the disposable income of the
Indians.The consumption pattern of India has
increased at a higher rate. Consumer expenditure
on food in India rose to a very higher rate and
now India is standing just after China in the consumer expenditure chart.

iv) Change in the Indian consumer profile

Consumer Profile

1999 2001 2008

Population 846 1,012 1,087


Population < 480 546 565

25 years of age

Urbanisation 26 28 31

Source: Statistical Outline of India (2007-08).

Rapid urbanisation, increased literacy and rising per capita income, have all caused rapid growth
and change in demand patterns, leading to an explosion of new opportunities. Around 45 per
cent of the population in India is below 20 years of age and the young population is set to rise

further. Aspiration levels in this age group have been fuelled by greater media exposure,
unleashing a latent demand with more money and a new mindset.

9. Demand-supply gap

Currently, only a small percentage of the raw materials in India are processed into value added
products even as the demand for processed and convenience food is on the rise. This demand
supply gap indicates an untapped opportunity in areas such as packaged form, convenience food
and drinks, milk products etc. In the personal care segment, the low penetration rate in both the
rural and urban areas indicates a market potential.


1. The Structure

The Indian FMCG sector is the fourth largest sector in the economy and creates employment for
three million people in downstream activities. Within the FMCG sector, the Indian food
processing industry represented 6.3 per cent of GDP and accounted for 13 per cent of the
country's exports in 2006-07. A distinct feature of the FMCG industry is the presence of most
global players through their subsidiaries (HLL, P&G, Nestle), which ensures new product
launches in the Indian market from the parent's portfolio.

Critical operating rules in Indian FMCG sector

• Heavy launch costs on new products on launch advertisements, free samples and
product promotions.

• Majority of the product classes require very low investment in fixed assets

• Existence of contract manufacturing

• Marketing assumes a significant place in the brand building process

• Extensive distribution networks and logistics are key to achieving a high level
of penetration in both the urban and rural markets

• Factors like low entry barriers in terms of low capital investment, fiscal
incentives from government and low brand awareness in rural areas have led to
the mushrooming of

the unorganised sector

• Providing good price points is the key to success

2. Penetration and per capita consumption pattern

Rural - urban penetration (2008)

Category Market Urban Rural Total

Size Penetration Penetration Penetration
High Penetration categories >50%:(%) (%) and consumption
Drive up gradation (%)

Fabric 1210 89.6 82 84.9

Washpenetration categories: Drive penetration
Low .9
Toothpast 409 69.8 32 43.5
e .3
312 36.6 24.7
Skin 19
230 40.1 23.3
148 66 45.1
Wash 16
107 44 .3 34.3
Powder 102 54.6 36 24.4
Penetration level in most product categories like jams, toothpaste, skin care, hair wash etc in
India is low. The contrast is particularly striking between the rural and urban segments - the
average consumption by rural households is much lower than their urban counterparts. Low
penetration indicates the existence of unsaturated markets, which are likely to expand as the
income levels rise. This provides an excellent opportunity for the industry players in the form of
a vastly untapped market.

Moreover, per capita consumption in most of the FMCG categories (including the high
penetration categories) in India is low as compared to both the developed markets and other
emerging economies. A rise in per capita consumption, with improvement in incomes and
affordability and change in tastes and preferences, is further expected to boost FMCG demand.
Growth is also likely to come from consumer "upgrading", especially in the matured product

Detergent per capita consumption (in kg) (2008) Tea per capita consumption
(in kg) (2008)

Personal wash per capita consumption (in kg) (2008) Toothpaste per capita

Skin care products per capita consumption (in Rs) (2008) Ice cream per capita
consumption (in litre)

Shampoo per capita consumption (in kg) (2008) Fabric wash per capita consumption
(in kg) (2008)

3. The rural urban break-up

i) Indian FMCG market urban

Most Indian FMCG companies focus on urban

markets for value and rural markets for volumes.
The total market has expanded from US$ 17.6 billion in 1992-93 to US$ 22 billion in 1998-99 at
current prices. Rural demand constituted around 52.5 per cent of the total demand in 1998-99.
Hence, rural marketing has become a critical factor in boosting bottomlines. As a result, most
companies' have offered low price products in convenient packaging. These contribute the
majority of the sales volume. In comparison, the urban elite consumes a proportionately higher
value of FMCGs, but not volume.

ii) Indian FMCG market - rural

Rural markets:

By the early nineties FMCG marketers had figured

out two things

• Rural markets are vital for survival since the

urban markets were getting saturated

• Rural markets are extremely price-sensitive

Thus, a number of companies followed the strategy of launching a wide range of package sizes
and prices to suit the purchasing preferences of India's varied consumer segments. Hindustan
Lever, a subsidiary of Unilever, coined the term nano-marketing in the early nineties, when it
introduced its products in small sachets. Small sachets were introduced in almost all the FMCG
segments from oil, shampoo, and detergents to beverages .Cola major, Coke, brought down the
average price of its products from around twenty cents to ten cents, thereby bridging the gap
between soft drinks and other local options like tea, butter milk or lemon juice. It also doubled
the number of outlets in rural areas from 80,000 during 2001 to 160,000 the next year, thereby
almost doubling its market penetration from 13 per cent to 25 per cent. This along with greater
marketing, led to the rural market accounting for 80 per cent of new Coke drinkers and 30 per
cent of its total volumes.

iii) Consumer-class boom

Household income distribution-2008 Household income distribution – 2015

Demand for FMCG products is set to boom by almost 60 per cent in 2007 and more than 100 per
cent by 2015. This will be driven by the rise in share of middle class (defined as the climbers and
consuming class) from 67 per cent in 2003 to 88 per cent in 2015.The boom in various consumer
categories, further, indicates a latent demand for various product segments. For example, the
upper end of very rich and a part of the consuming class indicate a small but rapidly growing
segment for branded products. The middle segment, on the other hand, indicates a large market
for the mass end products.

The BRICs report indicates that India's per capita disposable income, currently at US$ 556 per
annum, will rise to US$ 1150 by 2015 - another FMCG demand driver. Spurt in the industrial
and services sector growth is also likely to boost the urban consumption demand.


Growth Drivers

The current economic trend, exhibiting modest demand and supply is likely to have a medium-
term impact on the demand for FMCG products but promises revival and higher growth in the
long term based on the following fundamentals:

1. Expanding purchase basket resulting in higher penetration of products

2. Increased consumption with higher disposable household income

3. More consumers entering the market place (Rural and Urban base of pyramid)

For these developments to catalyse faster there are two sides of the equation that need to come

together demand and supply along with other systemic factors.

Each of the driver mentioned above are detailed in the following section.

Demand-side Drivers

1. Consistent GDP Growth

2. Increasing Consumer Income

Increase in incomes is largely an outcome of economic growth across sectors. Over the past few
years, India has seen increased economic growth, with a continuing and substantial impact on
consumer disposable incomes enabling good growth for the FMCG sector.

3. High Private Consumption

The Indian economy, unlike most Asian economies, has a very high rate of private
consumption (61%). Of that, a further 60% is due to retail spends – goods and products
that people consume, as opposed to services or essential consumption items like rent and

4. Ri

3. Rising Urbanization

India has 70% of its population living in rural areas. With rising urbanization, more people will
have exposure to modern products and brands and thus shift to branded and packaged goods
and products.

By 2015, an additional 75 million consumers will have moved into cities, not only buying
FMCG products for themselves but also serving as a conduit for information and goods to their
families still in rural India.

4 Increasing Discretionary Spends

Another encouraging factor is the falling spends on basic food items which frees up

consumer income for other categories of FMCG products. This trend is noticeable among both
urban and rural consumers.

Supply Side Drivers

1. Growth of Retail

From US$ 410 billion in 2008 (Rs. 2,000,000 crores), Indian retail is expected to grow to US$
535 billion by 2013 (Rs. 2,600,000 crores) and US$ 755 billion by 2018 (Rs. 3,600,000


Modern Retail- Modern retail is growing with a faster rate with a current size of US$ 18 Billion
(86000 crores) , it is 5 % of overall retail. However, with anticipated US$ 30 billion (Rs.
144,000 crores) in fresh investments over the next 5-7 years, modern retail will show impressive
CAGR of more than 30%. (Exhibit VIII) It projects it will grow to US$ 73 billion (Rs. 350,000
crores) by 2013 and US$ 170 billion (Rs. 816,000 crores) by 2018. From being apparel and
lifestyle led, Modern Retail will be a greater reflection of the actual share of wallet of the
average consumer. It will be the next key growth factor for the FMCG sector in India.

Traditional Retail – In absolute terms, Traditional Retail will grow more than Modern Retail, in
the next 5 years. This is contrary to most projections on this topic. From current US$ 392 billion
(Rs. 1,900,000 crores), It is expected that Traditional Retail to add US$ 70 billion (Rs. 336,000
crores) and grow to US$ 462 billion (Rs. 2,200,000 crores). As per the research it is estimated
that from current 9 million, the numbers of outlets selling FMCG is expected to increase to 11
million by 2013 and 16 million by 2018. It means, that Traditional Retail will grow slower in
percentage terms, but will continue to occupy a very dominant share of FMCG sales over the
next 10-20 years.

2. Low labour cost

India has by far the lowest labour cost compared to many emerging countries giving it an
edge for establishing manufacturing base for both Domestic and International FMCG brands.
Average labour cost in India is US$ 90/month compared to US$190/month in China, US$ 210/
month in Thailand and even higher US$1,300/month in Taiwan.

Systemic Drivers for Sectoral Growth

Several other factors are also encouraging for FMCG sector growth in the long run, such as
policy change and investments in infrastructure development.

1. Favourable changes in Government Policies

The Indian government has been trying to foster the growth of various categories of FMCG by
way of making policy changes. Some of the policy changes include:

• Automatic investment approval (including foreign technology agreements within specified

norms), up to 100 percent foreign equity for most of the food processing sector.

• Quantitative restrictions removed.

• Five-year tax holiday for new food processing units in fruits and vegetable processing.

• Customs duties reduced on plant and equipment, raw materials and intermediates, especially
for export production.

• Capital goods freely importable, including second hand ones.

• De-reservation of most FMCG categories from SSI.

• Many states have also begun competing with each other to offer incentives to different sectors
including FMCG, in the form of tax holidays, fiscal incentives, land at concessional rates and
subsidies to encourage economic development.

2. Infrastructure Development

The government has invested a considerable amount in the Golden quadrilateral project to
connect the four corners of the country. 50% of existing highways are being improved and
expanded. An outlay of Rs. 59,000 crores was earmarked for road development projects in the
10th Plan, between the aforementioned projects as well as projects to develop the National
highways (Primary system), the state highways (secondary system), major district roads and
rural roads. The railways are also increasing capacity through increasing tracks, improving
existing tracks and adding more freight compartments to enable better carrying of goods and



1. Presence of established distribution networks in both urban and rural areas.

2. Presence of well-known brands in FMCG sector -74 of the top 100 brands in India,as per the
Economic times Survey for the FMCG sector.

3. Low operational costs.

4. Wide ranging and large raw material base suitable for food processing industries, adequate
supply of key chemicals as caustic soda ash.

5. Low cost labout force.


1. Lower scope of investing in relevant technology and achieving economies of scale,especially

in relatively small and underdeveloped categories like packaged foods, colours cosmetics etc.

2. Low exports levels because of- a) dominance of MNC in FMCG sector and b) low exposure
and non existence marketing network for local companies.

3. “Me-too” or pass off products, which illegally mimic the labels of the established brands –
currently accounting for 10-15% of the total turnover (as per FICCI-BPC initiated ORG study).

4. Higher input cost: The companies witnessed rise in the input price during the year. Higher
crude, wheat, palm oil prices somewhat. They are restricted in this due to the low buying power
of the consumer.

5. High marketing cost due to competition – Large number of players resulting in high cost to

6. Infrastructure bottleneck in non homogenous widespread market price.


1. Low Category Penetration at present

Penetration of many product categories is still low. Even amongst those where the penetration
is higher, the per capita consumption is comparatively low, thus offering scope for high growth

in the future.

The FMCG sector has been investing time, effort and money in an increasing effort to
penetrate upcountry and rural markets. Over time, the demand from rural India for FMCG
products has come to constitute 45% of the total demand for the category.Market penetration
has been one of the focus areas of the sector, and thus sachet-isation of a variety of product
categories has been the norm. Providing consumers with ‘bite-sized’ or single-use packs of their
favourite products has resulted in more consumers being able to afford to try out these products.
As their incomes grow, they either shift to more frequent buys of the products or to buying larger
multi use packs.

2. Impact of Modern Retail on FMCG Sector

The advent of modern retail into any market, worldwide, has always made for a time of
upheaval for many product categories, including FMCG. Modern retail can have many benefits
for different product categories, including greater penetration, wider product range, the ability
to display the range, direct interaction with the consumer and with the product, the ability to
run specific promotions for specific regions etc.

i. Investments in Modern Retail

Currently the plans of the top 10 leading players alone include an investment of over US$ 30
billion (Rs. 144,000 crores) from 2008 – 2013, and their combined turnover should top US$
100 billion (Rs. 480,000 crores) by 2013-14. The plans of many of the current players
involve a large play within FMCG items, as these are critical items for any household and thus
would form a compelling reason for the consumer to be drawn towards modern retail stores.

ii. Increasing FMCG share in Modern Retail

What is of more interest to FMCG marketers, however, is to understand what percentage of total
FMCG sales are expected to come from modern as opposed to traditional retail. As per CMIE
estimates the penetration of FMCG in Organised retail will consistently grow from current 6%

to 15% by 2013 and further increasing to 25% by 2018.

The value of total sales would increase in both traditional and modern sales, due to growing
affluence of consumers and an increasing shift towards packaged and branded goods. However,
around 1/4th of the FMCG size would be corralled by modern retail.

This represents a very significant influence of modern retail over the FMCG sector, particularly
if one keeps in mind that the bulk of modern retail would be in urban areas where they could
control a much larger percentage of FMCG sales.

But this in no way undermines the potential of traditional formats simply because the larger
share is still estimated to be retained by traditional formats; at least in the next few years apart
from the sheer industry size which would be much larger translating into larger shares for both
traditional and Modern Retail.

3. Goods & Service Tax (GST) Implementation

A Goods and Service tax has been proposed by the Government, to be introduced by 2010,
with a tentative rate of 16% being mooted at present. This would replace the multiple indirect
taxes currently being levied on FMCG products. A GST would have several beneficial effects,

i) Uniform taxation - the rate of taxation would be the same across all geographic boundaries
of India and thus would eliminate the opportunity for arbitration as well as provide goods at a
uniform rate everywhere in India.

ii) Simplified taxation - calculating a GST at a uniform rate would be much easier and it would
make adherence to the proposed tax simple.

iii) Single point taxation - rather than a multiplicity of authorities to deal with, a single-point
taxation could be dealt with through a single-point window thus creating greater efficiency
and speed of operation within the system.

iv) Solve issues related to holding Regional warehouses - GST would do away with the need
for regional warehousing, thus freeing up greater margins to be either distributed to retailers,
FMCG firms or consumers.

v) Reduce inventory in transit - the amount of inventory held in transit is considerable at

present, due to the multiple check-points and authorities involved in the tax and clearance
processes. GST would reduce the amount of inventory in transit, creating greater operational
efficiencies and reducing working capital needs for FMCG firms

vi) Increase penetration of FMCG products - the price of FMCG products would fall if the
overall tax rate is reduced to 16% GST as proposed. This would expand consumption base and
also enable current consumers to consume more of the goods they need and want, thus
improving the lifestyle of people.

vii) Amplified growth of FMCG sector – The proposed rate of 16% GST can mean 10% -
12% reduction in retail prices of FMCG products and hence increased volumes and value for the
FMCG sector. GST implementation can give a very significant growth fillip to the FMCG
sector. As per CMIE analysis, GST implementation can speed up the growth of FMCG sector.

4. Zero Central Sales Tax (CST)

CST has come down from 4% in 2007 to 2% at present. A reduction to 0% by 2010 is

widely expected to be on track. With Zero CST implemented, companies can setup large
distribution warehouses and hubs as there will be no inter-state tax levied with zero CST. This
would require redesign of their current distribution network including modernisation of key
warehouses. Modernisation of key warehouses is strongly recommended because of-:

i) Large sizes and more complex operations.

ii) Increasing level and variety of service required by customers especially modern retailers.

iii) Increasing scarcity of skilled labour and real estate requiring vertical and
mechanised warehouses.


1. Reduction of import duty on finished good while maintaining high import duties on inputs
esp. Agro based raw materials. Also with low or no import duties on finished goods but high
import duties on raw materials there is an in unauthorized grey market import of global brands
which are manufactured in India especially by modern retailer. This severely undermines the
effort of the local manufacturer who invests in marketing of the brands.

2. Slow or not correct implementation of GST which could keep high indirect taxation levels
and drive down margins to FMCG firms on the other hand.

3. Private label or Store brands, especially in inflationary times.

4. Food prices crisis , resulting in reduction of discretionary income.


With the growth drivers in place, there are many issues and challenges the sector grapples with.
The key challenges faced by FMCG sector players in India are as follows:

1. Tax Structure - Complicated tax structure, high indirect tax, lack of uniformity, high octroi &
entry tax and changing tax policies.

2. Infrastructural Bottlenecks - Agriculture infrastructure, power cost, transportation

infrastructure and cost of infrastructure.

3. Counterfeits and Pass-offs.

4. Emergence of Private Labels.

5. Regulatory Constraints.

6. Price of Inputs.

1. Tax Structure –

i) Complicated Tax Structure - In India, problems are exacerbated by the complicated tax
structure. There is a VAT which is to be levied at state level, there are other state taxes such as
octroi and entry taxes and then centre levies excise duties and service tax. As a result, no
product cost is exactly the same from one state to the next.

ii) High Indirect Tax - Indirect Tax levels are quite high, especially in light of the fact that the
sector provides goods meant for daily consumption. China, for instance, levies a tax of 10%19
on average, whereas in India, the average is around 30%.

iii) Lack of uniformity - Despite VAT, states do not implement rates and procedures
uniformly. Each state still continues to approach taxation differently, and thus moving goods
from one state to another is like moving them from one country into another. The taxation
rate policies on many FMCG goods differ from state to state and centre to state. Centre has
classified many FMCG products under Merit (VAT exempt) list, such as processed foods,
tooth powder, sanitary napkins but states levy on the same products high rate of 12.5%.

iv) High Octroi & Entry Tax - There are Octroi and Entry Tax at city and state entry points
in a few states, which leads to an increase in pricing and affords opportunities for arbitrage. For
instance, Mumbai has octroi of 4-6% on goods produced outside of Mumbai. Thus, a bottle of
mineral water produced by Coke or Pepsi which have their plants in Thane, which is considered
outside the city limits of Mumbai, have to pay this extra charge, while Parle, which has a
bottling plant within the city limits does not. So Bisleri is sold in Mumbai for Rs. 12, while
Kinley or Aquafina cost Rs. 13, just because of the factory location. This opens up possible
arbitrage opportunities, apart from causing a genuine grievance to the consumer.
v) Changing Tax Policies - Tax policies keep changing which makes it difficult to plan for the
long term. For instance, tax havens were created in J&K some years ago and many companies
opened facilities there. However, recently part of the exemption was withdrawn by the
government, thus leading to a sudden hike in costs.

2). Infrastructural Bottlenecks-

i) Agricultural Infrastructure - Agriculture infrastructure in India is particularly weak. Firstly,

irrigation and modern farming methods are not widespread and thus agriculture in India is at
the mercy of nature. Thus, it makes for grossly varying amounts of harvest of critically needed
inputs into FMCG manufacture, from one season to the next and one year to the next.

ii) Power Costs - Power costs in India are very high and they contribute substantially to cost
of goods sold. They are 3-4 times the optimal costs.

iii) Transportation Infrastructure –To compound this problem is the poor transport and
roadways infrastructure – many of the villages are extremely poorly connected with means of
transportation – either road, rail or sea – so the amount of time it takes for the harvest to be
transported to the FMCG manufacturers is unpredictable, and results in substantial spoilage of
the goods. For example, it costs nearly 12 days to transport goods from Baddi in Himachal
Pradesh to South India, a distance of 3000 km. The lack of a cold chain adds to this problem,
because it means a tremendous amount of farm output actually rots or gets spoiled in transit.
Nearly 8% -10% of dairy produce is lost to pilferage.

iv) Cost of Infrastructure - It takes almost Rs. 7- 8 crores to lay 1km. Of road. Along with
this problem in land acquisition due to fragmented land holding further delay development of
road and rail infrastructure increasing the cost associated.

3. Counterfeit and Pass-offs

Counterfeit products are another issue for the FMCG sector. Taking advantage of the lack of
literacy and consumer knowledge, several small manufacturers churn out spurious products
which they label akin to the big brands, Lifebuoy or Lax soap or five star chocolate bars, Vicky
balm, for instance. These spurious pass off products affect large, high quality brands which have
actually invested money in research and development to create their products and build brand
equity. These account for almost 10% - 15% of the total sector revenue and pose serious
challenge to its growth and also impact government’s tax revenue significantly. But the only
recourse available to FMCG manufacturers against counterfeit and pass off products is to file an
FIR. There are no Bureau of Industrial Standards norms laid out for each product category which

could help prevent the mushrooming of counterfeit products. And an FIR results only in local
action, if at all, while the source of the counterfeit product continues to remain in existence.

4. Emergence of Private Labels

Apart from the pressure on margins, the biggest fear of FMCG players when facing Modern
Retail is the introduction of private labels or own brands. The fear is justified because world
over, private labels have served to lower the consumer’s price points, particularly at the mass
level. Moreover, there are inevitable conflicts of interest when a retail chain has its own label
whose packaging looks like category leaders’ and stocks brands of other manufacturers, in terms
of display space, promotions etc.

A Technopak analysis undertaken across product categories revealed that private labels
could constitute as much as one fourth of all sales in the FMCG category by 2011. While the
exact year could shift marginally, there is no denying the fact that private label FMCG goods
will be here and will constitute a formidable threat to add to the already fierce competition in
the FMCG category. Brands which currently appeal to price conscious value shoppers will be
facing the highest risk with advent of store brands.

5. Regulatory Constraint

i) State borders cause a lot of delays and it is common for 2-3 days of finished goods inventory
out of 20 -30 days’ total stuck on various state borders due to a requirement for multiplicity of
permits and licenses.

ii) The Indian labour laws were drafted in the 1940s and take no note of modern
manufacturing methods and strategies. They need to be changed on a more dynamic basis to
reflect present realities.

iii) There is lack of uniformity in definitions, and these do not follow international norms either.
Currently, drugs and cosmetics come under the same set of laws when in fact they need to
be treated differently. Weights and Measures used under FDA do not conform to those under
the Weights and Measures Act followed in India. Some products come under the OTC category
internationally but come under Schedule H drugs in India, requiring doctor’s prescription and
require to be distributed only in drug licensed stores.

iv) Acquiring manufacturing licenses is a long and painful process, beset with red tape and
corruption. It takes 10-12 months to get multiple licenses and to set up a manufacturing unit.

v) Reservation of jobs for employees creates many problems. For instance, Himachal Pradesh
has a reservation of 70% of jobs for people domiciled in Himachal Pradesh. Since they are

few in number, attrition happens for as little as Rs. 50 pm, and it becomes a problem to
maintain the requisite labour force.

vi) Export procedures are cumbersome and lengthy. There is no single-party interface so
multiple departments and officers have to be followed up with to get the requisite licenses.
A transport permit has to be sourced for each consignment rather than assigning a blanket
permit for a period of time.

vii) Subsidies are announced by the government but to avail of them is both confusing and
time- consuming.

a) Firstly, the amount of subsidy is restricted to Rs. 50 lakhs, regardless of the total
quantum of investment required by a project. Thus, if large projects and small get the same
incentives, large projects may not find takers.

b) Secondly, the release of the said monies is not time-bound and gets done in an ad-
hoc basis.

6. Prices of Inputs

i) Commodity prices fluctuate, which make it difficult to finalise raw material prices, affecting
the final price of the product. The petroleum price fluctuation also impacts the cost of supply
of materials. As a result, the entire supply chain dynamics need to be constantly planned
afresh with the changing prices.

ii) Indian consumers are more price-sensitive and value conscious, making it difficult for
FMCG firms to pass on the increased costs, leading to depressed margins.

Porter's Five Forces Model

1. Rivalry among Competing Firms

In the Fast Moving Consumer Goods (FMCG) Industry, rivalry among competitors is very
fierce. There are scarce customers because the industry is highly saturated and the com- petitors
try to snatch their share of market. Market Players use all sorts of tactics and ac- tivities from
intensive advertisement campaigns to promotional stuff and price wars etc. Hence the intensity
of rivalry is very high.

2. Potential Entry of New Competitors

FMCG Industry does not have any measures which can control the entry of new firms. The
resistance is very low and the structure of the industry is so complex that new firms can easily
enter and also offer tough competition due to cost effectiveness. Hence potential entry of new
firms is highly viable.`

3. Potential Development of Substitute Products

There are complex and never ending consumer needs and no firm can satisfy all sorts of needs
alone. There are plenty of substitute goods available in the market that can be re- placed if
consumers are not satisfied with one. The wide range of choices and needs give a

sufficient room for new product development that can replace existing goods. Every other day
there is some short of new product, variants and design. This leads to higher consumer’s

4. Bargaining Power of Consumers

Bargaining power of consumers is also very high. This is because in FMCG industry the
switching costs of most of the goods is very low and there is no threat of buying one prod- uct
over other. Customers are never reluctant to buy or try new things off the shelf.

5. Bargaining Power of Suppliers

The bargaining power of suppliers of raw materials and intermediate goods is not very high.
There is ample number of substitute suppliers available and the raw materials are also readily
available and most of the raw materials are homogeneous. There is no monopoly situation in the
supplier side because the suppliers are also competing among themselves.



Worst hit happened to all sectors during recession but there was one sector which act as a
defensive sector against the bad market, that is FMCG sector. There was lot of negativity in the
market during recession. Negative global cues had its impact on Indian equities. FIIs, major
participants in the equity market, offloaded equities worth Rs 47,706 crores during 2008-2009
(updated up to March 30), according to SEBI data. FY 2008-2009 stood the most volatile year
for all the global markets.FMCG companies performed during this period and even maintained
the sustainability in the market. Even though this sector was effected but it was least effected
competitively to other sector.

The BSE Mid-Cap and

BSE Small-Cap indices
were down by 54 per cent
and 58.6 per cent, during
the year. The BSE 500
index, which consists of
the top 500 companies in
terms of market
capitalisation, fell by 42
per cent.

The Sensex, whose constituents are 30 blue-chip companies from various sectors, fell even less.
The Sensex closed at 9,708, down by 37.94 per cent from the previous fiscal close of 15,644.
The broader 50-share Nifty closed 36.19 per cent lower at 3,021 (4,734.50). BSE FMCG sector
was least effected and it was down around -11.08%.

During this year the total number of the FIIs registered with SEBI stood at 1,635 and FII sub-
accounts at 5,015 as on March 31, 2009, against 1,319 FIIs and 3,964 sub-accounts a year ago.

The domestic institutional investors’ buying support in the falling market was not sufficient to
curb the fall in equities. However, there was some buying by them, and insurance companies
with regular premium money inflows raised their stake in several companies during the fiscal.

The same, however, was not true of the mutual funds which came under redemption pressure in

1. From 2004-2009

For the past 5 years the BSE FMCG index has performed or shown a growth rate of 160%
although the sector didn’t outperformed the benchmark sensex but it has shown a robust growth

2. From 2008- 2009

This was the time period when recession had started hitting the world mean while all the index
started falling in the negative zone. BSE FMCG index also falled but its rate was comparatively
much lesser then BSE SENSEX. And as on date 30Oct 2009, FMCG INDEX revived again in
the positive zone with a growth rate of 18.27% where as SENSEX is still in negative zone with
-21.71% growth rate.


There was a time in Indian economy when reality sector was the fastest growing sector. It was
the best performing and preferred sector by the FII’s and Indian investors. During the boom time
the sector has made a record hit. Most of the investments were channelizing into this sector, but
when the recession happened this sector was the worst hit among all but on the other hand
FMCG sector proved as a defensive sector.

The above graph sector depicts that FMCG index(BSEFMC) was least volatile comparatively to
the benchmark index SENSEX (BSE)and to the fastest growing sector ,reality sector index (i.e.
BSEREA) .This sector has proved itself the highly safest sector when there is high volatility in
the market. Now as on 31Oct ,2009 the fastest growing sector is still in negative zone with
-70.65 growth rate and with SENSEX comparatively less with -21.7% and the FMCG sector
with a positive growth rate of 18.27% comparatively to the same time in the previous year.


Budget for this year remained neutral for the FMCG sector with less of reforms in for this sector.
However, likely reforms and its impact which will affect the sector. These are-


Duties, Allocation &Taxes-

1. Budget outlay for various rural and agriculture‐centric schemes proposed to be increased.

2. Allocation under National Rural Employment Guarantee Scheme (NREGS) proposed to be

increased by 144% to Rs.39,100 crores.

3. Exemption limit in personal income tax proposed to be raised by Rs. 15,000 for senior citizens
and by Rs.10,000 for all other categories of individual taxpayers.

4. Surcharge on various direct taxes proposed to be phased out; in the first instance, elimination
of the surcharge of 10% on personal income‐tax has been proposed.

5. Excise duty rate on items currently attracting 4% proposed to be raised to 8% with major
exceptions of some products including specified food items viz. biscuits, drinks, cakes and

6. Concessional customs duty of 5% on specified machinery for tea, coffee and rubber
plantations proposed to be reintroduced for one year, up to 06.07.2010.

7. Customs duty on `mechanical harvester’ for coffee plantation proposed to be reduced from
7.5% to 5%. CVD on such harvesters also proposed to be reduced from 8% to nil, by way of
excise duty exemption.

8. FBT on the value of certain fringe benefits provided by employers to their employees
proposed to be abolished.

9. Introduction of the Goods and Services Tax (GST) proposed with effect from April 1, 2010.


i) Enhanced allocation under NREGS and increased budget outlay on other rural and agriculture‐
centric schemes will boost rural economy resulting in a spur in demand for FMCG in rural areas
and villages.

ii) The proposed hike in personal income tax exemption limits as well as elimination of
surcharge on personal income‐tax will increase disposable income in hands of consumer leading
to increased spending on FMCG.

iii) The biscuit industry will benefit from being spared a hike in excise duty on specified food
items including biscuits, drinks, cakes and pastries.

iv) Reintroduction of customs duty on specified machinery for tea and coffee plantation will
increase the input costs of the industry However, coffee manufacturing companies will benefit
from reduction in customs duty and CVD on `mechanical harvester’ for coffee plantation.

v) Continued thrust on NHDP would help reduce the transportation costs of the industry.

vi) In addition, proposed introduction of GST with effect from April 1, 2010 will address the key
issue of multiple taxation which is currently hampering the sector’s growth.

vii) Abolition of FBT is also positive for the industry. Overall impact on industry players would
be largely positive.


Changing Face of India

It is expected that food expenditure in India will grow at the rate second
fastest after China during 2007-2011. The fast growth in the consumer
spending is led by advertisement spending, campaigns to market
products and brands, free sample distributions, launch of innovative and
new brands, and strengthening of the product distribution networks. All
these factors have brought a wave of change in the consumption habits
of people in the last few years, evident from changing preference of the
urban Indians, who don’t like to spend hours in kitchen cooking food,
and instead resort to convenience food. Changing lifestyle on account of
increasing disposable income of Indians is significantly affecting the
consumption patterns. In the last five years, per head disposable
income of Indians surged at a CAGR of 10.2%. Increasing presence of women
in working population and rising number of nuclear families with double income
are leading to change in lifestyle. Also, these factors are resulting in increased
overall disposable income of the Indian consumers, which, in turn, is increasing
their spending. The normal spend on the personal care which stands at 8 per cent
presently is expected to reach 9 per cent in 2015 and 11 per cent in 2025 leading to
growth driven by better product mixes and enormous value addition

McKinsey’s Analysis-

According to McKinsey’s estimates, the shape of India will change from a pyramid to a diamond
as going forward by 2025. The Indian consumer chain can be looked into like a pyramid
including ‘Global Indians’ with annual income of over Rs 1000000 on the top, next lie the
‘Strivers’ with annual income range of Rs 500000-1000000, ‘Seekers’ constitute the third
category with a range of Rs 200000-500000 followed by ‘Aspirers’ (Rs 90000-200000) and
finally the ‘Deprived’ with annual income of less than Rs 90000. By 2025, it is estimated that
this pyramid will turn into a diamond shape with the share of Aspirers and Seekers rising to 32%
and 36% respectively and the Deprived being cut down to 22%. About 32 crores people will be
added to the key consuming class. This indicates the bud- ding potential in the country which
would direct the demand growth in the industry. In addition to this, the changing demo- graphics
also stand in support of the industry. It is estimated that by 2015 almost 63 % of Indian
population would be work- ing i.e. Aged between 15-59 years thereby indicating growth in the
income class therefore in consumption. According to estimates, about 28 crores people will be
added to the working population. Being a major portion of Indian demography ruled by the
young generation, which is more aspiring, the industry shall continue to get huge consumers for
their products. It is estimated that the total demand for FMCG products shall grow with a CAGR
of 6% by 2015.

Chapter- IV

Following are the findings from the study-

1. From the following studies it has been analysed that investing in FMCG sector for long term
horizon will be beneficial, because this sector is highly driven by consumption and spending
pattern of the Indian consumers, as India is growing fast so the economy will also grow and with
the help of that the consumption pattern and disposable income will also get improved which
will be fruitful for the FMCG sector to grow.

2. FMCG sector is less volatile comparatively to trend mover sectors like IT or Reality sector, so
it will be beneficial or suitable for the value investors.

3. This sector can also be called as defensive sector as we can analyse from the charts that how
this sector has outperformed the benchmark index and the trend driven high return giving sector
like Reality sector. The comparative analysis shows that this sector was least affected during the
period of recession and hence proved to be the less risky sector during the bearish market.

4. Government measures like spending in NREGS will boost up the demand in the rural sector in
India which is the next big untapped market in India. This rapid growing market will provide
huge business to this Industry.

5. On the other hand this industry less performs in the period of high rate of inflation, the prices
of the commodities like edible oil, crude price rise leads to increase in the price of general
commodity which leads to high price of commodities that stops the consumer to spend more, and
less disposable income affects the business of the industry.

6. Also natural factors like improper rainfall affects the commodity prices and factors like
improper tax regime and poor infrastructure which again affects the businesses of this industry.

7. GST (Goods & Service Tax) which is announced to be implemented from 1st April, 2010–
and possible opening of retail to foreign investment (FDI), will ensure multi-fold growth for
FMCG sector in the next 10 years.

8. It is expected than India will come two second place after China in consumer spending, this
led by heavy promotions and advertisements done by companies in building their brand. In the
past 5 years India has seen surge in net disposable income with a CAGR of 10.5 % which like to
grow even more higher rate with favourable govt measures and economic growth.



The FMCG sector has a tremendous opportunity for growth in India, with the growing
population, the rising incomes, education and urbanization, the advent of modern retail, and a
consumption-driven society.

However, successfully launching and growing market share around a branded product in India
presents tremendous challenges. Many of these challenges raised have to do with operational
inefficiencies – an ambiguous and inconsistent tax regime, bureaucracy, hazy and outdated
legislation as well as infrastructural bottlenecks.

These need to be overcome not only through a concerted effort by the industry but with active
government intervention and promotion to ensure that the sector is able to perform as per its

Chapter- V



1. Strengthen Consumer Understanding - Deep consumer understanding will always be at

the heart of FMCG. Especially during the current downturn, it is critical to know and respond to
changing consumer and shopping behaviour. More sophisticated and rigorous tools need to be

2. Improve Engagement with Modern Retail - There are large synergies for FMCG
companies and Modern Retail if they work closely together. Some areas include:

• Key Account Management – Appoint account managers to work with retail partners.
Together, create plans on everything from stocking practices to display, pricing and in-store
promotions. Improve fill rates with Modern Retail, which are currently very low at 60%.

• Collaboration - Developing a brand exclusively for a retailer enabling the retailer to offer
unique products / offers to the customer and saving marketing costs to the manufacturer.


1 An investor can invest in this sector for long term point of view as there is a large rural
untapped market is there in India and also there is a growing population which will increase the
demand in the near future. A value investor can for this sector.

2. This sector is not recommended for growth investors because in short run this sector fluctuates
less and also its not a follower of market driven or market rally sector.

3. Household and clothing sector moves faster in the bullish trend but during downturn the basic
needs driven sector gets least affected so investor must do the detail analysis before investing.

3. Investment should be done when the market is discounted or the sector is a lower PE, this
will be the best time for the investor to invest.

4. Indian FMCG sector is still far away from its saturation point, large government spending and
economic development will boost up the industry business and its expected that Indian
market will exceed the china market till 2015.



i) Dr. Prasanna Chandra, Investment Analysis and portfolio management, Third Edition

Journal and magazines-

i) Economic times newspaper.

ii) Capital market magazine.

iii) Economic and political review Journal.

i) www.investopedia.com
ii) www.cmie.in
iii) www.edelweiss.in
iv) www.stockmarketviews.com
v) www.etintelligence.com
vi) www.valuenotes.com
vii) www.equitymaster.com