FMCG stocks stage a comeback as market sentiment shifts. Is the recovery here to stay?

Indian FMCG stocks: After prolonged selloff on Dalal Street, FMCG stocks saw a brief breather last week as investors returned with a vengeance to the Indian markets after remaining on the sidelines for months. This also sparked buying interest in FMCG stocks, helping the Nifty FMCG index snap its four-week losing streak.

During the last week, the index spiked from 50,739 to 51,891 points, resulting in a gain of 2.37%, the second-biggest weekly gain of 2025 so far. Twelve out of 15 constituents of the index ended the week in positive territory, with Varun Beverages emerging as the top gainer, surging by 12%.

Will the momentum hold?

FMCG stocks need to sustain last week’s momentum going forward to stage a meaningful recovery, as the index remains down by 22% from its September peak of 66,438 points. In a rare occurrence, the index ended last month with a decline of 10.60%, marking its worst monthly drop on record.

The index, which includes Nestlé and HUL, has closed the last five months in the red, marking its longest monthly losing streak on record. The once high-flying FMCG stocks, known for their defensive nature, have been falling to levels not seen in many months amid slowing consumer demand, rising input costs, and shifting spending patterns.

Investors expected a turnaround in earnings during the December quarter from packaged consumer goods companies, but those expectations turned sour as a majority of them missed Street estimates, impacted by the dual pressures of a demand slump and inflationary stress, leading to low volume growth.

Urban demand, which accounts for about two-thirds of the FMCG business, remained weak in recent quarters. Although volume picked up in the December quarter, it lagged behind growth in rural areas. The sluggish job market, with limited new employment opportunities and lower disposable incomes, is making it increasingly difficult for urban consumers to maintain their previous spending levels.

Rising food inflation has also prompted consumers to shift towards smaller packs, which has impacted companies margins during Q3. It’s not only FMCG companies that are feeling the heat of lower spending by urban consumers; the automobiles industry is also moving at a slow pace, as tightening budgets are making consumers hold back on their vehicle purchase plans.

The weakening urban consumer demand is also expected to impact India’s economic growth, which is projected to hit a four-year low in FY25. The struggling economy has also prompted the central bank to maintain the FY26 growth outlook at the same level as FY25.

To boost consumer spending, the Indian government shifted its focus from capex to consumption for the first time in a decade, increasing the income tax exemption limit to ₹12 lakh in the Union Budget 2025. In line with the budget, the RBI, under the new governor, cut the repo rate for the first time in almost five years to put more money in the hands of consumers as a way to boost spending, which is a major driver of the Indian economy.

The results of these efforts remain to be seen in the following quarters, with expectations that the RBI may announce more rate cuts as a response to ongoing economic challenges. Despite these measures, consumer goods stocks remain under pressure, as weak commentary from FMCG companies has overshadowed the positive impact of the budget and RBI policy measures.

Against this backdrop, foreign portfolio investors trimmed their holdings in FMCG companies, offloading ₹6,991 crore worth of stocks during February, as per NSDL data, leaving significant pressure on stock prices.

Looking ahead, the revival in urban consumer demand, improvement in employment, growth in real wages, and a decline in food inflation are key for a turnaround in FMCG stocks, as per the market experts.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.