The stockbroker had advised many of his clients to allocate as much as half of their corpus to such defensive scrips.
When confronted with the disappointing performance of this portion of their portfolios, the stockbroker shrugged and offered what would soon become a classic quip: “Half of your portfolio is non-cyclic—the problem is, you never know which half."
It is not known whether his clients appreciated his comic flair, but for millions of Indian investors in the fast-moving consumer goods (FMCG) sector, the line currently hits uncomfortably close to home.</p><div id="paywall_11749462121325">
India’s FMCG sector has been an outlier for all the wrong reasons—first sitting out the bull market over the past two years, and then failing to live up to its defensive billing during the downturn, since October 2024.
Does this set the stage for a long-overdue rebound in FMCG stocks? Or will investors be unlucky a third time? The recent march quarter (Q4) results offer some clues.
The devil in volumes
The most conspicuous trend of the just concluded Q4 results season was a tepid demand environment reported by most FMCG firms, with urban growth continuing to remain weak while rural markets maintained their recovery.
As per Nielsen data, rural markets outdid urban markets for the fourth straight quarter. Rural volume growth in Q4 came in at 8.4%, nearly 4x more than urban’s 2.6%. Overall, this meant anaemic volume growth for FMCG companies.
India’s biggest FMCG company, Hindustan Unilever Limited (HUL), considered a proxy for domestic consumption in the country, posted an underlying volume growth of 2% in Q4, up from zero in the previous quarter but at the same level as the year-ago quarter. For the full financial year 2024-25, underlying volumes growth stood at 2%, similar to the previous year.
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“FMCG market witnessed subdued demand trends in 2024-25. Rural demand continued to improve gradually while urban demand moderated over the year,” Rohit Jawa, MD and CEO of HUL, said at the company’s post-earnings conference call. “While syndicated data is available only for general and modern trade, we also incorporate e-commerce data from our partners for internal tracking. Including e-commerce data, urban demand continued to moderate during the year,” he added.
Peer Nestle India too continued to post muted performance, with Q4 revenue growing by 4.5% over the year ago quarter to ₹5,448 crore. The company finished 2024-25 with 3.2% domestic sales growth and flat volumes—a disappointment for the Street given Nestle India’s portfolio strength and its ongoing rural distribution expansion as part of a ‘rurban’ strategy.
Analysts noted that increasing competitive intensity and lacklustre consumer demand affected the growth of two key business verticals—prepared dishes (including Maggi noodles) and milk and nutrition foods.
On similar lines, biscuits and bread maker Britannia Industries’ Q4 volume growth of 3.5% came in below analyst estimates of around 5%. The company’s volume growth rate is on a declining trajectory. The figure was 8% in the first two quarters of 2024-25, slipping to 6% in the third quarter and then almost halving in the March quarter.
<p>Analysts noted that increasing competitive intensity and lacklustre consumer demand affected the growth of two key business verticals – prepared dishes (including Maggi noodles) and milk and nutrition foods.
Analysts also noted the pricing dynamics in the industry.</p>
“The Q4 results across various companies did not demonstrate the anticipated positive effects of price increases, which were expected to mitigate inflationary pressures and contribute to enhanced topline and margins,” Saurabh Pathak, head, investment counsellor, Purnartha, a portfolio management services company, told Mint.
However, he added that a moderation in agricultural commodity prices is a favourable development and suggests the potential for improved earnings in 2025-26.
What hit the margins?
Inflationary trend in raw material costs was a conspicuous drag across the sector in the previous financial year. While prices of key inputs like palm oil, tea, coffee, wheat and cocoa have eased a bit, they are still at elevated levels. The rupee depreciating against the dollar too contributed to the rise in import bills.
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HUL highlighted how prices of palm oil, a critical input for almost all FMCG firms, soared 18% in 2024-25 compared to the previous fiscal year. Tea prices vaulted by 19%, even as crude oil prices dipped 6% and soda ash eased 6%.
Wheat flour, forming almost 30% of the raw material costs for Britannia, rose 9% quarter-on-quarter, while that of palm oil increased 7% sequentially. The only respite was sugar prices, which stayed flat sequentially and yearly, but even this too may see upward pressure, given that the Centre has increased the fair and remunerative price (FRP) of sugarcane by 4.41% to ₹355 per quintal for the upcoming 2025-26 season beginning October.
FRP is the minimum price mandated by the government that sugar mills are legally obligated to pay sugarcane farmers for their produce.
Not just that, India’s sugar output for the 2024-25 marketing year, ending in September, is projected to fall below consumption for the first time in eight years, as per the All India Sugar Trade Association. The country is expected to produce 25.8 million metric tons of sugar, down 19.1% from the previous year, while consumption is estimated at 29 million tons.
The cumulative impact of the inflation in raw material costs was a decline in margins for FMCG companies.
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HUL’s gross margins contracted 140 basis points (bps) to 50.5% over the year-ago quarter, while that of Nestle India dropped 65 bps to 56.2%. ITC saw acute margin pressure across its cigarettes, FMCG, and paperboards/packaging segments, with its gross margins plunging 347 bps on-year to 54.7%. The company noted that there was sharp escalation in key input materials like edible oil, wheat, maida, potato, cocoa, leaf tobacco and pulpwood, especially in the second half of the year.
The K word
In stark contrast to the volume pressures faced by FMCG firms, their premium portfolios showed robust growth, demonstrating the K-shaped divide in the economy.
For instance, HUL reported that its premium offerings like Dove and Pears are growing faster than Lux and Lifebuoy soap brands.
FMCG major Dabur noted that while its beverage portfolio declined due to slowdown in urban consumption, the premium segment has done well, with Real Activ and coconut water recording a robust growth of 11%. Companies like Britannia and ITC said they are stepping up new product launches in the premium space.
Even in a traditional segment like agarbattis (incense sticks), ITC launched premium and novel fragrances in dry dhoop sticks and cones format under its ‘Scent’ range.
Almost every company identified premiumisation as a key vector of growth, and reported expanding their premium and value-added offerings.
Another common factor in Q4 earnings was that e-commerce growth outpaced that of general trade. This is also margin accretive for companies, as their e-commerce basket comprises premium and higher-priced products.
Local trouble
At the other end of the spectrum though, listed players are facing intense competition from local players in tier-II, III and rural markets. “Competitive intensity (including from local players) remained high in noodles, snacks, biscuits, and popular soaps,” Kotak Institutional Equities stated in a note on ITC’s Q4 results.
Many analysts have pointed out that increasing price sensitivity and downtrading in some categories is leading to a resurgence of local players in rural markets.
“Local brands (Samrat atta, Vikram masala, Chheda salt) are outperforming premium names (Tata Tea, Soulfull, Aashirvaad) by leveraging aggressive pricing and local consumer preferences,” analysts at Anand Rathi Institutional Equities noted.
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<figcaption class="psFigcaption psFigcaption2">Some local brands are outperforming premium names by leveraging aggressive pricing, analysts say.
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The slowdown in urban demand and momentum of low-priced local players in rural markets are yet another indicator of the stress in the overall consumption space. This is corroborated by recent macroeconomic data as well.</p>
India’s economic growth stood at 7.4% in the March quarter of 2024-25, compared to 8.4% in the year-ago quarter, resulting in a GDP growth rate of 6.5% for the full fiscal year. This was its slowest growth since the covid-19 pandemic. For context, India grew 9.2% in 2023-24.
Private Final Consumption Expenditure (PFCE), which measures the total spending by households and non-profit institutions on goods and services and accounts for nearly 60% of the GDP, grew 6% in Q4–the lowest in 2024-25.
Meanwhile, household income growth remains muted for both urban and rural households, according to RBI’s survey of March 2025.
Spotting winners
To say that the FMCG sector is facing challenges would be to flirt recklessly with understatement. Even so, analysts are optimistic on the near-term outlook for consumer staples stocks on the back of a host of factors aligning favourably for the sector.
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Resilient rural demand is expected to get a further boost given IMD’s forecast of above-normal monsoon this year, which bodes well for rabi crop output.
On the urban side, falling inflation, particularly of food items, can aid the recovery of mass-market demand. Retail inflation eased to a nearly six-year low of 3.16% in April mainly due to subdued prices of vegetables, fruits, pulses, and other protein-rich items. Food inflation stood at 1.78%, lower than 2.69% in the preceding month and 8.7% in the year-ago month, as per data released by the National Statistics Office (NSO).
The recent income tax cuts delivered in the Union Budget, and the expected revision to salaries and pensions by the 8th Pay Commission, should give a fillip to middle-class disposable income and spur consumption.
In a recent report, global investment bank UBS stated that consumer stocks are well placed for a strong rebound in 2025-26. “We expect this to be driven by an earnings recovery, attractive valuations and structural challenges being successfully overcome,” UBS noted.
“Our preferred approach is to buy the laggards with inflection points, companies with successful high growth business models that are not vulnerable to disruption, and companies that can benefit from a cyclical earnings rebound. We also think the sector offers both defensive names (if the market were to remain volatile and risk averse) and recovery stories should risk appetite return,” it added.
<p>The recent income tax cuts delivered in the Union Budget, and the expected revision to salaries and pensions by the 8th Pay Commission, should give a fillip to middle-class disposable income and spur consumption.
UBS has classified consumer stocks into four buckets. The first category of ‘growth turnaround situations’ comprises HUL, Godrej Consumer Products, and Dabur, which can see significant rerating if their portfolio issues are resolved. The second group, ‘facing disruption narrative’, comprises names like Asian Paints and Dmart, which are seeing challenges from new entrants and quick commerce, respectively. The third bucket is seeing moderate growth and no major disruption. Stocks like Colgate, ITC and Marico fall in this group. The last bucket comprises high growth and highly valued names like Titan and Tata Consumer.
On the input side, while prices of commodities like palm oil, tea, coffee, cocoa, milk, wheat, copra and edible oil, have been inflationary in the recent past, they are now showing a declining trend. This, along with selling price hikes are expected to boost margins in coming quarters.
Many experts also advise investors to avoid the excesses of the past. “As an investor, if you’re still buying a soap manufacturer for 60-times earnings or a paints maker for 70-times earnings, and then expect 15-20% type returns, then I don’t know what to tell you,” a Mumbai-based fund manager said on condition of anonymity.
With heavyweights like HUL and Nestle still facing volume headwinds, analysts say investors should focus on a bottom-up approach within the FMCG sector, as an index-driven strategy may not yield outperformance.
“The near-term outlook for dominant players like HUL and ITC does not appear particularly promising. However, it will be crucial to monitor the Q1-FY26 results for both companies. An improvement in margins and volume could position the index more favourably, although its ability to outperform the benchmark index remains uncertain,” Purnartha PMS’ Pathak said.
“Investors should closely track volume growth, key raw material price movements, trends in urban demand and spending to gain confidence in the sector or specific companies within it,” he added.
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