With the consumption recovery showing signs of improvement but facing fresh pressure from rising input costs, investors may need to look beyond headline sales growth before placing their bets on FMCG, consumer durables and discretionary stocks. Market experts believe that while rural demand is gradually strengthening and select companies are reporting healthier volumes, the sustainability of the recovery remains uncertain. Higher crude prices, costlier packaging materials and the possibility of further price hikes could weigh on margins in the coming quarters, making stock selection increasingly important.
Sunny Agrawal of SBI Securities advises investors to adopt a staggered approach and focus on companies delivering genuine volume growth rather than relying primarily on price increases.
“A staggered investment approach would be more sensible, with preference for companies showing improvement in actual sales volumes rather than growth driven mainly by price increases,” Agrawal said.
Preeyam Tolia of Choice Institutional Equities flags near-term margin pressures for FMCG companies. He noted that Q2FY27 revenue is likely to remain stable; however, rising crude prices are expected to keep margin performance under pressure for most FMCG companies in the near term, as the benefit from lower cost inventory seen in the previous quarter moderates.
“Higher input costs, particularly crude-linked derivatives such as packaging materials, are likely to weigh on sector margins, with Home and Personal Care companies likely to be impacted more than food-focused FMCG players,” he added.
However, Vincent K A of Geojit Investments highlighted improving demand trends alongside persistent commodity cost risks. Quarterly results expected to offer greater clarity on sales momentum and profitability.
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Vincent noted that consumption recovery has been gradually strengthening and, while the market has started pricing in an improvement, the outlook remains dependent on the durability of demand amid rising cost pressures.
“Recent industry trends suggest improving demand conditions, particularly in rural markets, while premium and convenience-led categories continue to outperform,” he said.
Tolia added that most FMCG companies have indicated stable demand trends in their pre-quarter updates. “However, companies have already implemented mid-single-digit price hikes, and a sharp increase in raw material costs, the possibility of further price hikes and a below-normal monsoon could weigh on volume growth going forward,” he said.
Among FMCG stocks, Marico emerges as a common preferred pick, backed by encouraging volume growth and improving demand trends, according to Sunny Agrawal and Vincent K A.
Agrawal also favours ITC and Hindustan Unilever, citing healthy growth in ITC’s FMCG business and encouraging volume trends at HUL, while Britannia features among his preferred stocks on a risk-reward basis. Vincent also highlights Nestlé India, Tata Consumer and Britannia, pointing to product innovation, premiumisation and distribution expansion as key growth drivers.
Meanwhile, Preeyam Tolia is positive on Bajaj Consumer Care, alongside Varun Beverages, citing intact long-term growth drivers and a recent correction that offers an opportunity for long-term investors. However, the analysts caution that rising input costs, particularly crude-linked packaging materials, could weigh on margins.