FMCG Sector Anticipates Stable FY26 with Margin Recovery

Consumer goods companies are projecting a stable fiscal year 2026 for raw materials, alongside a recovery in margins starting from the second quarter, according to Nuvama. The majority of fast-moving consumer goods players have witnessed multi-quarter high revenue and volume growth, driven by strong demand trends.

Urban demand has bounced back, fueled by higher disposable incomes resulting from the Reserve Bank of India's rate cuts and a drop in consumer inflation to an eight-year low. Urban general trade, previously sluggish, is now rebounding, while robust rural demand is buoyed by a strong monsoon season and healthy crop output.

Margin pressures, which were concerning in previous quarters, appear to have eased in Q1. Margins are expected to improve as raw material corrections filter through from Q2. Earnings before interest, tax, depreciation, and amortization growth lagged in the first quarter, partly due to holding high-priced raw material inventory.

With stabilizing raw material prices, profitability is predicted to rise in forthcoming quarters. While FMCG companies have improved topline performance, margin pressures persist; in contrast, discretionary consumption has slowed, notably impacting consumer durables.

The report suggests income tax cuts and GST rate reductions might bolster demand. Within the consumer durables segment, Consumer & White goods companies reported strong growth supported by volume increase, with new projects slated in the coming months.

The solar products category is experiencing strong market traction as companies diversify to meet increasing consumer demand. The trend of premiumisation, focusing on higher-value products, persists across categories to bolster margins. Overall, while Q1 saw margin challenges due to raw material costs, the forecast for FY26 remains stable, with anticipated margin recovery from Q2 and consistent growth in urban and rural demand.

(With inputs from agencies.)