India’s consumer staples sector is showing its strongest volume growth in years, according to a new report from BNP Paribas. The brokerage has turned positive on the sector after a prolonged slowdown, even as a spike in crude oil prices continues to squeeze company margins.
FMCG revenue growth hit a multi-quarter high of 14% year-on-year in the June quarter, the report said. Industry-wide topline growth was at a multi-year high in the same period. EBITDA growth for the sector also climbed to around 15%, its strongest pace in several years, the report noted.
GST rate cut lifts FMCG volumes
The single biggest driver, according to the report, is the goods and services tax rate cut. Volume growth has recovered across staples companies since the reduction took effect, the brokerage said. It expects the benefits to last beyond the current financial year, since organised players have become structurally more competitive against smaller, unorganised rivals.
Field visits by the BNP Paribas team to Delhi, Haryana and Uttar Pradesh in October found a mixed picture on the ground. Distributors and retailers voiced some scepticism that companies would pass on the full benefit of the tax cut to consumers. In the Sadar Bazar wholesale market, the report noted, shoppers ahead of the festive season crowded in to buy affordable products, including regional brands and, in some cases, cheaper alternatives. Rural retailers, the analysts found, mostly stock small packs and low unit packs, and had not yet felt much impact from the tax change since goods were still being sold at printed prices.
Crude oil prices pressure FMCG margins
A spike in crude oil prices dented gross margins across the sector in the June quarter, the report said. Crude-linked inputs such as palm oil derivatives and linear alkyl benzene, used widely in detergents and personal care products, have moved up sharply this year.
Companies have responded with calibrated price hikes. Detergent makers led the increases, with Hindustan Unilever raising prices by roughly 2 to 8% across brands, including liquid detergents. Edible oil prices have also risen on commodity inflation. According to the report, these price hikes, combines with an eventual easing in raw material costs could help the margins to recover in the coming quarters, unless crude prices spike again.
Mass consumption gets a boost
Mass consumption, which has struggled in recent years, is showing signs of a broader revival, the report said. Low inflation, the GST rate cut, rising gold prices and the spread of gig economy jobs are all cited as tailwinds.
Premiumisation continues among affluent consumers
Even with that caveat, the report said premiumisation across categories is continuing. According to the report, India’s affluent households, which is defined as those with annual incomes above $10,000, number between 40 million and 50 million, and are benefiting from rising incomes, easier access to credit and higher asset prices.
That cohort is also becoming a more contested market. The report noted that affluent consumers now have more options and are increasingly exposed to direct-to-consumer brands catering to niche preferences, which is fragmenting spending that once went mostly to large, established companies.
Quick commerce discounting slows
Quick commerce platforms have begun pulling back on aggressive discounting, the report said, because of the profitability issues across the industry. Blinkit turned adjusted EBITDA breakeven in the third quarter of the last financial year, while Swiggy’s Instamart reached contribution margin breakeven in the June quarter this year. BigBasket, meanwhile, is narrowing its footprint to 40 higher-density cities from 76 previously, the report noted.
The moderation in discounting is a positive development for both traditional staples makers and the quick commerce companies, as it leads to a sustainable and less cash-burning phase for the channel, the report explained.
FMCG stock valuations hit decade low
Even with growth improving, BNP Paribas cautioned that consumer staples stocks are not inexpensive. Valuations across the sector have been derating for several years, a trend the report said has continued even after the GST rate cut. Still, current multiples are at their lowest point in a decade, and staples are beginning to offer dividend yields above 2%, alongside prospects for double-digit earnings growth between the 2026 and 2028 financial years, with comparatively low disruption risk, the brokerage said.
Among individual stocks, BNP Paribas rated Britannia, Titan and Doms Industries as outperformers. It flagged Jubilant Foodworks, Godrej Consumer Products and Nestle India as names to avoid or hold for now, citing margin-dilutive growth strategies, execution concerns and rich valuations respectively.