Disrupted production and badly hampered supply chain are the two major concerns of the FMCG sector. The government has allowed continuation of essential services and delivery of basic needs during the lockdown even in the red-zones. But what severely affects is the change in customer’s buying behaviour.
The euphoria to over stock these essential items for household needs and the attitude of “buying anything” might disrupt the demand-supply equation.
Demand on the other hand remained on higher side especially for staples, household items and hygiene products. But delivery is major concern as retailers are not able to function at full pace.
FMCG sector definitely would be a victim of the pandemic. In my opinion, the impact would be long lasting and might take three to four quarters to get back on track. Interestingly, hygiene products have entered into the essential category, whereas industries like apparel have shifted to discretionary. E-commerce sector might be a beneficiary in long run and FMCG might be on its track.
Indian FMCG players might witness transformation, especially at supply chain end as there is a significant shift in work as industry is retailer driven. Work from home, online delivery mechanism and customer orientation towards purchasing of fast-moving consumer goods is new transformation that industry might have to encounter.
Hindustan Unilever, ITC and Godrej Consumer Products have temporarily halted manufacturing of most product lines and enhanced the production of necessities, including hygiene products like sanitisers and liquid soaps, to ensure there are no supply constraints.
The availability of trucks continues to be the biggest challenge at the moment, few more weeks at least for the entire ecosystem and processes to be streamlined for the movement of essential goods.
The number of workers working in factories and distributor locations is still on the lower side due to the safety concerns and social pressure. FMCG as driven by retailers might face difficulties in shifting their business on online platforms and pressure of home delivery.
Consumers seem to be putting off purchases because of low liquidity in the market. Outlook for the sector, in my opinion, remains muted and moderate.
But in the long run, sector growth is likely to get on track once COVID-19 crisis get solved. In mid to long term, stocks including multinationals giants like HUL, Nestle, P&G might have an upper hand. However, challenges which includes adversely affected supply chain, customer orientation and industry dynamics are expected to hamper FMCGs.
The author is Head of Research at CapitalVia Global Research Limited - Investment Advisor.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.