FMCG Stocks Shine as Defensive Bet Amid Oil Spike, Geopolitical Risks

According to a report by BNP Paribas India, the outlook for Indian consumer staples has deteriorated due to the recent spike in oil prices triggered by tensions in West Asia.

Higher crude prices are expected to push up input costs and weigh on margins in the near term, it said.

However, the brokerage noted that staples have historically outperformed during periods of oil shocks, such as in 2008, 2011 and 2022, with relatively smaller earnings cuts compared to other sectors.

"Despite the worsening outlook, stocks have been beaten down disproportionately," the report said.

It further highlighted that most staples companies are now trading at valuations last seen a decade ago, offering improved comfort for investors.

The sector which was earlier seen as a play on earnings recovery in FY27, is now being viewed more as a defensive bet amid risks from elevated energy costs and global uncertainty.

In the near term, the March quarter (4Q FY26) is expected to reflect the benefits of improving domestic consumption, with analysts projecting double-digit year-on-year EBITDA growth, the first such expansion in nearly 10 quarters.

However, rising commodity costs, particularly crude-linked inputs such as palm oil and polymers, are expected to exert pressure on margins starting the first half of FY27.

Companies are likely to pass on some of these costs through price hikes, the report noted.

The report also indicated that crude prices rose sharply toward the end of the March quarter, with sequential increases of around 24 per cent, driving up costs of key raw materials.

While a ceasefire has reduced the risk of further sharp spikes in oil prices, analysts cautioned that sustained elevated crude levels could impact demand and profitability.

Analysts at the brokerage have estimated that for FY27 and FY28, earnings have been revised downward across the sector and are now below consensus, reflecting the impact of higher raw material costs and currency pressures.

Despite these headwinds, consumer staples are expected to remain relatively resilient compared to other sectors, especially if oil prices stay elevated, as their defensive characteristics tend to attract investors during periods of market volatility, according to analysts.

Since the conflict began, the Nifty FMCG index declined as much as 5.76 per cent or 2,948 points to 48,194 between February 27 and April 10.

In addition, the index traded at 47,291, hitting an intraday low, a decrease of about 2 per cent or 900 points on the NSE.

- IANS