Investment Opportunities in Indian Consumer Brands

I am often asked why I’m so optimistic about FMCG (Fast Moving Consumer Goods) businesses in India. Could it be because I’ve dedicated last twelve years of my life to investing in brands? Well, I genuinely believe that my enthusiasm is grounded in data.

Historically, the FMCG sector has shown growth at 1.2 times the GDP growth rate. With nominal GDP growth now anticipated at 12-13% pa, the FMCG sector is projected to experience annual growth in the range of 15-16%. At this rate, the market is expected to double in approximately five years. Given the current estimated size of the FMCG industry at around $100 billion, an additional $100 billion is forecasted to be added over the next 4-5 years.

It’s also crucial to acknowledge that changes in income levels often prompt shifts in brand loyalties. As consumers move up the income ladder, their preferences and priorities evolve, making them more open to exploring new brands and products.

Moreover, at the most fundamental level, as individuals ascend the income spectrum, there’s a notable transition from unbranded to branded products.

The graph presented is likely 4-5 years old and numbers may have changed somewhat, yet it nicely illustrates the low penetration of various product categories among Indian consumers, as well as the substantial share held by the unorganized sector.

The size of the bubble reflects the market size in Rs. 100 bn.

Picture a market with an annual incremental growth of $100 billion (the rationale behind this minimum will be addressed in the next paragraph), accompanied by a multitude of customers exhibiting fluid brand loyalties. Additionally, consider the recent relative ease of introducing new brands into this market by being digital first.

Tell me am I missing something?