Resilience of FMCG stocks in a crash!!

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The Big Day - 4 June 2024 - When Nifty was🔻~8.5% at a time, FMCG Companies were showing their resilience. Nifty closed @🔻~5% whereas NIFTY FMCG closed @ 🔼 ~1% and is 🔼~6% in 3 trading sessions after that.


What's causing the FMCG sector to be so resilient even during a crash?


It all summarizes to "Increase in RURAL Spending."


1. Election Results - BJP, the ruling party for the last ten years is more inclined towards capitalistic policies - be it privatisation of PSUs or high Capital Expenditure in Infrastructure - Roads and Railways etc. 

What has happened is that BJP when contesting for the 3rd time saw a rise in Urban votes but a significant dip 🔻in Rural votes.

Why you ask?

The Capitalistic policies take time to reap fruits, and even more time for the fruits to reach rural areas. The urban India which has witnessed mass development in cities voted for it, but rural India didn't.

Rural India voted for the regional parties or the opposition alliance which proposed populist and socialist policies that directly provide benefits to them.


Now, as we live in a democracy - another set of state elections are lined up, so the BJP who will attain power for the third time at the centre may incline a little more toward socialist policies to attract rural voters to win.


A government that favors welfare measures often ramps up spending on social programs. This boosts disposable income for lower-income households, leading to higher consumption of essential goods, which in turn benefits FMCG companies.


"Most brokerages are betting that the new government will shift to a policy focussing on boosting rural incomes and consumption since that has clearly been a pain point." - Business Standard

Only the upcoming budget can give a clarity on the same.


Apart from the above, there are other reasons for the strength of FMCG companies:-


2. India is likely to receive above-average rainfall, which in turn will increase agricultural output, increasing the income of farmers, which will increase the RURAL Spending.

3. From the last quarter also, growth in rural spending is taking a boost, when compared to Urban spending.

4. Defensive Stocks - Historically also, FMCG stocks have been defensive in nature, having a Beta fairly below 1.


Signing off for today

Devansh Singla


Recommended Reads - 

How did FMCG Companies Survive a Market Crash?? by Market Brew.

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