FMCG Sector: Positioned for Resilient Recovery Amid Market Volatility

Despite recent sluggish growth, the FMCG sector shows promise for improvement, according to a Phillip Capital report. Factors such as easing inflation and tax benefits might boost recovery by FY26, although volumes and margins will rise slowly. The FMCG index outperformed, suggesting safe investments amid uncertainties.

In a recent analysis by Phillip Capital, the Fast-Moving Consumer Goods (FMCG) sector is seen as potentially bouncing back in the coming quarters despite slow growth observed in recent years. The report suggests a primarily positive outlook for FY26, with easing inflation, improved rural demand due to favorable monsoon conditions, and tax benefits from the latest Union Budget fueling optimism.

Although the FMCG sector has underperformed the broader market over the last five years, recent trends show better prospects. The FMCG index has risen by 2.6% over the past month, in contrast to a 1.7% decline in the Nifty50. This outperformance highlights the sector's potential as a safer investment choice amid ongoing market uncertainties.

However, Phillip Capital highlights that recovery in FMCG volumes and profit margins will likely be slow. Estimated earnings per share (EPS) for FY26 and FY27 have been reduced by up to 4.5%, and target PE multiples have been slightly lowered due to weak market sentiments. Nonetheless, the report forecasts a 9.6% growth in sales for FY26 with steady EBITDA increase, positioning FMCG stocks for resilience against current market challenges.

(With inputs from agencies.)