India’s fast-moving consumer goods (FMCG) sector has faced challenges over the last five years, struggling to keep pace with broader market indices due to stagnant growth and macroeconomic pressures. According to insights from Phillip Capital, the anticipated Q4 FY25 results are unlikely to significantly shift investor sentiment, as expectations for the quarter remain modest at best. Despite these hurdles, the brokerage suggests that much of the apprehension is already reflected in the current market valuations, with the Nifty FMCG index trading at 37x one-year forward earnings, aligning with its five-year average.

Q4 FY25 Projections: Modest Growth Expected

Phillip Capital forecasts that volume growth in the FMCG sector will likely remain in the low-to-mid single digits for Q4 FY25, with a median revenue growth anticipated at 5.8%. This growth primarily stems from price increases rather than a revival in consumer demand. The sector faces ongoing margin pressures due to high raw material costs—including palm oil, wheat, cocoa, and copra—which could lead to a 3.2% year-over-year decline in median EBITDA and a margin contraction of about 180 basis points.

• Companies like Marico and Tata Consumer are expected to achieve double-digit revenue growth.
• Conversely, Dabur and Hindustan Unilever may struggle with the weakest volume growth in the industry.

A Cautious Outlook for FY26 Recovery

Looking ahead, Phillip Capital maintains a cautiously optimistic stance for FY26. The brokerage highlights several positive macroeconomic factors, including stabilizing CPI inflation, easing raw material prices, and a potential recovery in rural demand fueled by favorable monsoon conditions. They also point to income tax relief from the Union Budget as a possible boost for consumption later in FY26. The firm projects a median sales growth of 9.6% for its FMCG coverage universe in FY26, compared to 6% in FY25, and an EBITDA growth of 13.5%, a significant increase from just 1% in FY25.

However, Phillip Capital has slightly reduced its FY26-27 earnings per share (EPS) estimates by up to 4.5% due to the current weak sentiment and has also decreased target price-to-earnings (PE) multiples. Key factors to monitor include rural distribution trends, urban market demand shifts, premium segment growth, and fluctuations in raw material prices.

FMCG Sector’s Resilience Amid Market Fluctuations

Interestingly, the FMCG sector has shown resilience, outperforming broader market trends over the past month. The Nifty FMCG index has risen by 2.6%, while the Nifty50 has seen a decline of 1.7%. This performance indicates the sector’s robustness during turbulent market conditions. Nonetheless, Phillip Capital advises a selective investment strategy, focusing on companies that are adapting to changing consumer preferences through innovation and improved distribution networks.

Top Investment Picks: GCPL, Marico, Tata Consumer, and Britannia

Among the standout recommendations from Phillip Capital is Godrej Consumer Products Limited (GCPL). The company has shown a strong recovery in homecare volume growth in Q4, alongside increasing demand for its new RNF-based liquid vaporizer product. GCPL could potentially deliver high single-digit volume growth and double-digit value growth in FY26-27, trading at a forward PE of 42x, which suggests an appealing risk-reward scenario.

Tata Consumer Products is also highlighted as a strong candidate, benefiting from solid performance in its core tea and salt segments and growth in new ventures like Capital Foods and Organic India. Phillip Capital anticipates 10.4% sales growth and 18.4% EBITDA growth in FY26, with the stock priced at 50x forward PE, offering a 15% discount from its peak valuation.

Britannia Industries is expected to maintain mid-single-digit volume growth in Q4 FY25, with a focus on product innovation and rural expansion supporting margin improvements in FY26-27. The brokerage forecasts 11% sales growth and 14% EBITDA growth for FY26, with the stock trading at 43.8x forward PE, in line with its historical average.

Finally, Marico is recommended for its strong sequential volume growth and effective pricing strategies. The company’s diversification has paid off, with food and personal care segments contributing 21% to domestic sales. Plans for a 50% increase in direct distribution by FY27 are expected to enhance revenues. At 43x forward PE, Marico presents an attractive investment opportunity.

In summary, while the outlook for Q4 FY25 may not immediately uplift market sentiment towards FMCG stocks, the longer-term perspective is more optimistic. A combination of improving macroeconomic conditions, supportive policies, and better rural dynamics could pave the way for a more robust recovery in FY26, although challenges from sustained urban weakness and raw material inflation remain.