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FMCG stocks have largely underperformed in 2024 due to weak base demand, inflation, adverse weather conditions, and lower agricultural production growth. However, leading market experts and domestic brokerages predict a gradual recovery in the FMCG sector, driven by a revival in rural demand and visible improvements in volume and margins.
In the April-June quarter of fiscal year 2024-25 (Q1FY25), market analysts note a strengthening growth trajectory for consumer staples and improved margin performance across most FMCG players.
Factors behind FMCG stock decline
- Commodity prices and food inflation: The sector, reliant on raw materials both domestically produced and imported, has faced challenges from rising commodity prices and food inflation.
- Crude oil impact: Crude oil, a key import from Russia and the Middle East, affects the volume and margins of several FMCG firms. Paint manufacturers like Asian Paints, Berger Paints, and Kansai Nerolac Paints use crude oil in production. Consumer goods giants such as ITC, HUL, and Nestle also depend on oil for producing refined cooking oils and food items.
Analyst at Geojit Financial Services, stated, “The FMCG sector has underperformed relative to main indices over the past year due to weak rural demand, adverse weather, lower agricultural growth, high inflation, and increased local competition.”
Despite a bullish sentiment in Indian markets driven by foreign fund inflows and robust macro indicators, FMCG stocks have mostly delivered negative returns, declining over six months to a year. When Nifty 50 and Sensex saw a significant decline on June 4, the FMCG sector was among the few to record gains, defying market trends. However, analysts warned against short-term intraday trading strategies due to long-term price declines.
The FMCG sector faces challenges but shows signs of recovery with strengthening rural demand and improved margins. Investors should stay cautious but optimistic about the sector’s potential growth in the coming quarters.