The Fast-Moving Consumer Goods (FMCG) sector is showing signs of resilience amid current market volatility, according to a recent report by Phillip Capital. Despite muted growth in recent years, the sector is expected to improve in the coming quarters, with a more positive outlook for the financial year 2025-26 (FY26).
The report outlines several factors that could support a turnaround. The pressures of high inflation, sluggish urban demand, and elevated raw material costs are gradually easing. Additionally, rural consumption is forecasted to pick up, buoyed by the possibility of another favorable monsoon season. Consumption may also receive a boost from the tax relief measures introduced in the latest Union Budget.
Reflecting its relative strength, the FMCG index has climbed 2.6% in the past month, while the benchmark Nifty50 declined by 1.7%. This divergence signals that FMCG stocks could serve as a safer investment during periods of uncertainty.
Nevertheless, the report tempers expectations for a rapid revival. Recovery in FMCG volumes and profit margins is likely to be gradual. In light of this, Phillip Capital has revised its earnings per share (EPS) projections for FY26 and FY27 downward by up to 4.5%. Target price-to-earnings (PE) multiples have also been slightly reduced to reflect prevailing market sentiment.
Sales growth for the companies covered in the report is projected to accelerate to 9.6% in FY26, up from 6% in FY25. Operating profit (EBITDA) growth is expected to show a stronger rebound, rising to 13.5% in FY26 from a mere 1% this fiscal year.
Despite this optimistic outlook, the report notes that the Nifty FMCG index has underperformed the broader market over the past five years. The fourth quarter of FY25 is also likely to be subdued, which may dampen investor enthusiasm in the near term.
Phillip Capital emphasized that much of the sector’s existing challenges are already reflected in current valuations. The Nifty FMCG index is currently trading at a PE ratio of 37, which is consistent with its five-year average. The recent outperformance of FMCG stocks supports the view that the sector is better equipped to weather ongoing market challenges.
