FMCG Outlook: Urban Slowdown, Seasonal Delays Add To Sluggish Demand

Muted demand in the Fast Moving Consumer Goods sector persisted through October, with festive sales falling short of expectations and urban consumption under pressure, according to reports from Axis Securities and Antique Stock Broking. Delayed onset of winter further dampened preloading of seasonal products, impacting the sector's performance in the second quarter, they noted.

Axis noted that topline growth remained muted due to weak urban demand, heavy rainfall and heightened competition. Antique Stock Brokers largely noted the same, adding they expected the winter portfolio to pick up in November. 

Antique Stock Broking highlighted weak demand sentiment during the festive period, which failed to revive consumption. Companies like Hindustan Unilever Ltd. and Godrej Consumer Products Ltd. reported mixed performances, with HUL's soaps and personal care segments showing sequential improvement, while GCPL faced competition in soaps, but saw positive consumer response to new launches.

At current valuations, their preferred picks were GCPL and Marico in staples, and United Spirits and Radico Khaitan in alcoholic beverages.

Axis Securities noted a surprising slowdown in urban demand, attributed to muted wage growth, higher interest rates, rising EMIs, and increased competition from D2C brands and quick commerce platforms. Urban areas, which account for over half of FMCG sales, faced significant challenges in discretionary spending.

Despite urban weaknesses, rural demand showed signs of recovery, supported by easing inflation, government spending, a good monsoon, and improved Minimum Support Prices. Both brokerages expect rural growth to sustain in the coming quarters.

Antique flagged that the late arrival of winter had delayed offtake of winter-focused products, with improvement anticipated only in November. Companies like Dabur India Ltd. and Emami Ltd. experienced muted performances due to the delay.

• HUL reported strong detergent offtake, while soaps and personal care products improved sequentially.

• GCPL saw slight moderation in household insecticides, but positive feedback for new product lines.

• Marico's performance is expected to improve with rising edible oil prices.

• ITC's cigarette sales grew by around 3%, while its food segment recorded mid-single-digit growth.

• Varun Beverages and DOMS Industries remain Axis’ top conviction ideas. 

Gross and Ebitda margins remained constrained, impacted by elevated raw material costs, including palm oil and packaging. According to Axis Securities, subdued volume growth and margin pressures were likely to persist through the second half of the fiscal.

However, both firms noted the sector's structural growth drivers, including rural penetration and premiumisation trends. Axis Securities highlighted the sector’s robust return ratios, positioning FMCG as a resilient investment in a volatile market.

With rural demand remaining a bright spot, the sector's recovery was expected to pick up gradually in the second half as companies adapted to evolving consumer preferences and competitive pressures.