Improved consumption trends bring cheer to FMCG counters

Synopsis

FMCG stocks experienced a surge following positive business updates from Godrej Consumer, Dabur, and Marico, signaling improved demand prospects. Godrej Consumer led the gains, fueled by expectations of double-digit revenue growth. While some analysts caution against generalizing the trend, optimism is driven by a favorable monsoon and anticipated urban demand uptick, potentially favoring stocks with stronger growth prospects.

Mumbai: Shares of fast-moving consumer goods (FMCG) firms advanced Monday after Godrej Consumer's quarterly business update pointed to improved demand prospects. Godrej is the third company after Dabur and Marico to signal a stronger-than-expected growth outlook, but some analysts warn against painting these performances as an industry-wide trend.

"A sequential improvement in volume growth and revenue growth indicated by Godrej Consumer Products, Dabur and Marico led to renewed investor sentiment," said Ajay Thakur, research analyst - FMCG, Anand Rathi Institutional Equities. "A good monsoon is seen propping up rural demand and an uptick in urban demand also supports sentiment."

The Nifty FMCG Index gained 1.7% on Monday, while the benchmark Nifty remained flat. Of the 15 stocks on the FMCG Index, 13 advanced and two declined.

Agencies

Godrej Consumer jumped 6.4%, leading the gains in FMCG stocks. Dabur gained 3.5%, while HUL and Emami rose over 2.5% each. Britannia Industries climbed 2.1%, and Varun Beverages and Tata Consumer advanced 1.7% and 1.5%, respectively. While the pickup in volumes is expected to stronger in the second half of FY26, gains might be limited to stocks that offer better growth prospects.

"The positive guidance was largely for Godrej Consumer and Marico but since the FMCG stocks have been beaten down, the other stocks also rose in hopes of a recovery," said Amit Purohit, VP, Elara Capital. "Although second half is anticipated to be better, Q1 is expected to be muted."

Godrej Consumer Products said in its quarterly update that the volume growth is improving from the previous quarter, and the company expects double-digit rupee revenue growth on the back of high single-digit volume growth.

Dabur's growth guidance is softer than that of Godrej, but investors were expecting far worse. "There were expectations of flat to declining growth in Dabur, but the company expects low single-digit growth, which might be perceived optimistically in the otherwise lacklustre quarterly update," said Purohit.

So far this year, the Nifty FMCG Index has declined 2%, while the benchmark Nifty has gained 7.7% in the same period. Thakur said he prefers Godrej Consumer among large cap FMCG stocks, while Dabur's valuations are attractive.

Purohit said investors should focus on specific stocks in the sector based on their reported growth.

"Godrej Consumer Products and Marico are clear standouts and as the market rewards growth, gains are likely in these stocks," said Purohit. "Other stocks may move up as the narrative around the government focus on consumption, good monsoon, and base effect to play out."

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