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Our channel checks/pre-quarter updates point to stable demand trends for July/August partially offset by GST transition-led disruption (c.300-400bps impact on sales growth) for a majority of staples players in September and the extended monsoon (for beverage categories). Within our coverage universe, we expect Foods players to grow a tad faster compared to HPC players. In terms of sales growth, we expect outperformance from Marico, TCPL, Bikaji, DOMS, and Honasa, and a resilient print from ITC (Cigarettes); Colgate, Asian Paints, VBL and HUL are likely to report a soft quarter. Profitability trends are unlikely to change materially – GM stable QoQ but lower YoY due to raw material (RM) inflation (especially agri-commodities) and discounts extended to clear pipeline inventory, resulting in low-single-digit EBITDA decline for the quarter. However, with lower gross margin coming into the base, EBITDA growth should look better from 3QFY26E. Hence, management commentary on festive season trends/GST transition impact in 3QFY26E will be key to determine the pace of volume recovery and overall earnings trajectory in the coming quarters. Marico, Britannia and Bikaji remain our preferred picks.

` GST transition-led disruption in September to weigh on overall sales growth: Our channel checks and management commentaries point to stable demand trends for July/August. However, post announcement of GST rate cuts, some near-term disruption has been seen – a) muted ordering activity by channel partners in order to liquidate inventory with old MRP and b) delay in pantry stocking by consumers, thereby impacting volume trajectory in September. This apart, the adverse monsoon had an impact on discretionary segments like paints and beverages. Within the HPC segment, we expect Marico to outperform yet again with high-single-digit volume growth. GCPL, HUL and Jyothy Labs are likely to see low-single-digit volume growth while Colgate is expected to underperform with mid-single-digit decline owing to high base and GST transition-led disruption. Within the F&B segment, it is a mixed bag – we expect volume trajectory for TCPL (domestic tea) and Bikaji to improve vs. 1QFY26, low-single-digit volume growth for Britannia and continued weak volumes (due to the adverse monsoon) for beverage players like Varun Beverages and Dabur (Juices). Within other discretionary segments, we expect mid-single digit volume growth for Asian Paints and ITC-Cigarettes.

* Marico, TCPL and Bikaji to outperform; soft quarter for Colgate, HUL and VBL: Pricing growth is likely to remain firm with Marico leading the pack (c.60%/high teens price hike in Parachute/Saffola edible oils), followed by high-single-digit pricing growth in TCPL (domestic tea), mid-single-digit pricing growth in Britannia, GCPL and low-single-digit growth in HUL. For our HPC coverage universe (ex-ITC), sales growth is expected to be 5.5% in 2QFY26E (vs. 6.5% in 1Q). However, for the Foods universe, growth is expected to a tad higher at 7.0% (vs. c.4.8% in 1Q). As a result, for overall staples coverage (ex-ITC) we expect sales growth of c.6.1% (a tad lower vs. 7.1% in 1Q). We expect Marico to outperform with sales growth of c.30% followed by Honasa (c. LTL sales growth of c. 20%+), and low-double-digit growth in Bikaji/TCPL.

* Weaker gross margins and scale deleverage to impact operating profitability: The input cost environment has been a mixed bag in Sep-Q with palm oil prices inching up and copra prices seeing further inflation, while crude oil and tea prices remained benign – JM Proprietary FMCG RM Index was up 1.4%/4.6% YoY/QoQ in 2QFY26. On the profitability front, we expect YoY compression (but stable QoQ) in gross margin and EBITDA margin (due to scale deleverage) for our staples coverage (ex-ITC). EBITDA growth for staples (ex-ITC) is likely to report low-singledigit decline YoY in 2QFY26, with margin compression of c.160bps YoY. Going ahead, how the RM basket behaves (copra season and fresh crop for palm oil in 2H) and impact of GST rationalisation will be the key monitorable

* Valuation & View: Our coverage universe for Staples (ex-ITC) is trading at NTM of 54x, closer to the long-term average. While demand trends have not deteriorated and remain largely similar to that in recent quarters, broad-based recovery across segments is still elusive. On YoY basis, EBITDA comparables will start to look better from 2H (as low GM starts coming into the base) and revenue base turns favourable too from 2H (weak festive in the base). To that extent, management commentary on demand trends in festive/post GST rate cuts will be key monitorables from the perspective of future earnings drivers and rerating from current levels. We have raised our earnings estimate by 1-2% for Britannia, Nestle while cut by c.4-5% for VBL & Jyothy labs

* Aligning with our new rating system, we change our rating from a) HOLD to ADD for Dabur, Colgate, TCPL and Jyothy Labs, b) BUY to ADD for HUL, DOMS, Honasa, c) SELL to REDUCE for Asian Paints and d) HOLD to REDUCE for Nestle.

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