India's FMCG sector growth remains resilient despite inflationary headwinds: Report
New Delhi, June 30
India's fast-moving consumer goods sector is expected to maintain healthy revenue growth in the first quarter of FY27 despite inflationary pressures, aided by premiumisation, selective price hikes, stronger performance in modern trade and quick commerce, according to an Anand Rathi report.
The brokerage said sectoral growth remains resilient, with improved pricing power, favourable seasonal demand, innovation and GST rate cuts in select categories supporting consumption. It also expects lower crude oil and crude derivative prices to improve margins in the coming quarters.
"We hosted/interacted with multiple dealers/distributors/experts from Consumer sector (FMCG/Paints/AlcoBev), who suggested healthy sectoral revenue growth in Q1/FY27," the report said.
The report expects, the double-digit revenue growth witnessed over the past two quarters to sustain or improve during Q1 and the first half of FY27, with pricing actions offsetting pockets of demand weakness in general trade.
It noted that while rural demand has moderated in some categories, urban consumption has remained relatively resilient. Beverages, summer-centric products, premium offerings and innovation-led portfolios continued to outperform, whereas food categories such as tea, biscuits and confectionery witnessed some slowdown on a high base.
According to the report, inflation driven by higher crude-linked commodity costs has resulted in widespread price increases through MRP hikes and grammage reductions. This has prompted consumers to shift towards smaller packs and local brands, making growth largely pricing-led rather than volume-driven.
"Pricing-led growth is expected to continue until emergence of meaningful volume recovery," the report noted, adding that rural recovery and the progress of the monsoon remain key monitorables for the sector.
The report also highlighted the continued structural shift towards alternate distribution channels. Quick commerce is rapidly expanding its presence in urban markets, while modern trade continues to record robust growth. However, the report said general trade is expected to remain the dominant distribution channel because of its extensive rural reach.
Beyond FMCG, paints and alcoholic beverages also reported healthy momentum. Paint demand remained resilient despite cumulative industry price hikes of around 15-16 per cent, driven by strong repainting demand and an extended summer season. In alcoholic beverages, premiumisation continued to support value growth even as overall volumes remained subdued.
On the outlook, Anand Rathi believes recent corrections in FMCG stocks have created attractive valuations and expects around 10 per cent revenue CAGR and nearly 14 per cent earnings CAGR across its consumer coverage universe during FY26-28.
"We continue to believe the valuation of several FMCG players are attractive given improved growth prospects in FY27," the report said.
— ANI
Reader Comments
Finally some positive outlook for FMCG! But honestly, quick commerce is killing local kirana stores in cities. Yes, general trade has rural reach, but urban areas are seeing big shift. As a consumer, I appreciate the convenience but feel bad for small shopkeepers. We need balanced growth.
Interesting analysis from Anand Rathi. I'm from the US but follow Indian markets closely. The premiumisation trend is fascinating - Indians are upgrading across categories despite inflation. Shows rising aspirational consumption. But the MRP hikes and shrinkflation are concerning. Transparency is key.
In my village in UP, people still buy from general trade shops. Quick delivery bhi nahi aati yahan. But the price hikes hurt - tea and biscuits have become expensive. Middle class is squeezed. Hope the monsoon helps rural recovery. Government should focus on controlling inflation first, not just celebrating growth numbers. 🙏
The 10% revenue CAGR and 14% earnings CAGR projections look optimistic. I'm curious how GST rate cuts on select categories are playing out. In most markets, tax cuts rarely translate to lower consumer prices. Still, FMCG remains a defensive play in this high-inflation environment. Good for long-term investors.
Premiumisation is the word of the day! But for every person buying premium shampoo, there are ten buying smaller sachets. The gap between rich and poor is widening. Paint companies hiked 15-16% and still demand is strong? That tells me only urban middle class and above are driving growth. Rural Bharat is struggling. 🤔
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