Hopes of another US-Iran talk gave a brief breathing space for the domestic fast-moving consumer goods (FMCG) space on Wednesday, but the pack remains one of the most beaten-up sectors of the West Asia crisis. As things stand, FMCG’s defensive tag has taken a beating during these volatile times. And it is also expected to remain one of the major laggards at least for the near-to-medium term.
Since the end of February when the war in West Asia began, the Nifty FMCG index fell 7%, more than the 5% fall of the Nifty 50. Similar was the case with the year-to-date performance, with the sectoral index falling more than 14% when the benchmark index was down almost 9%. The sector has seen muted performance at least over the last one year – be it earnings growth or equity returns.
For a pack that failed to maintain the optimism from a bunch of events – tax relief, GST cuts, better rural demand, and good monsoon in the last two years – what came as a double whammy is the India Meteorological Department’s (IMD) latest forecast of a below-normal monsoon for 2026. It projected that India will see an 8% deficit in monsoon this year compared to the long-period average.
Double Whammy
“IMD’s forecast of a below-normal monsoon after two years of excellent rains is a negative trigger,” Kaustubh Pawaskar, lead analyst (consumption) at ICICI Securities, said. It can impact agriculture production and may hit the rural demand which had seen a good recovery in FY26, he added.
With crude oil prices still hovering near $100 per barrel, the possibility of muted growth of the sector in the medium term is currently a high possibility. Market experts are now keeping their fingers crossed for good growth figures in the March quarter, as indicated in the quarterly business updates of consumer companies. However, the crude oil price volatility and the consequent pressure on commodity prices are likely to put pressure on margins and profitability at least in the first half of FY27.
Margin Pressures
“The sector may now find it difficult to grow in a good double digit, say 12-13% in revenue terms, assuming a modest inflation of 2-3%,” said Amit Purohit, FMCG analyst at Elara Securities. Price hikes are likely and some large players could gain market share as regional brands may find it difficult to source raw materials due to the rise in commodity prices.
Sales growth of many organized fashion and retail players have come down to low single digits, say 2-3% from a high growth rate of about 15-20% about 4-5 years ago, said Dhananjay Sinha, chief executive officer and co-head of institutional equities at Systematix group. This indicates a clear slowdown in the consumption space caused by the slowdown in household income, along with the other key triggers.
Now, market players will wait for post-earnings management commentary to get clarity about the outlook for the sector. Many analysts are anticipating earnings downgrades, with many looking at muted earnings growth in the next few quarters and a likely further selling pressure in these stocks.