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Trade disturbance and early festive season to impact growth trend; all eyes on commentary

In our consumer coverage universe, almost all segments are expected to deliver revenue/EBITDA growth YoY in 2QFY26 – staples +5%/+0%, paints & adhesives +3%/+10%, liquor +9%/+10%, innerwear +6%/+6%, QSR +10%/-13%, and jewelry +16%/+24%.

* Consumption trend to be uneven; Liquor/Jewelry to outperform: In 2QFY26, despite underlying trends being stable for most of the quarter, Sep’25 saw variation owing to GST 2.0, early festivals and extended monsoon. We expect liquor and jewelry companies to still deliver better growth and profitability margin in 2QFY26. Several staple companies (particularly personal care) have passed on GST benefits even prior to 22nd Sep. It will have some bearings on margins. QSR and paint companies continue to see demand pressure and are likely to see weak EBITDA margin. Liquor and Jewelry companies are expected to deliver strong profit growth.

* Staple companies are expected to see massive benefits from GST 2.0, but the trade transition has been impacting primary growth in the interim. We expect the transition impact more for personal care categories (early GST benefit passon, delay in channel placing for winter portfolio, etc.) than packaged food companies. Price packs (LUPs) were expected to see more grammage addition to pass on GST rate cut, but due to new pack manufacturing (molding related, etc.) challenges, these packs have also seen MRP cuts than grammage addition. All such transition changes will be interim and we expect stability from Nov’25 onward. Thereby, 2Q performance may not reflect the true demand trend, but the management commentary will be more critical to gauge the 2HFY26 outlook. Key raw material prices remain firm, and we expect gross margin pressure to persist for most consumer companies. Moreover, staple companies (particularly personal care) have passed on GST benefits even prior to 22nd Sep, which will have some bearings on margins. We model gross margin contraction of 130bp YoY and EBITDA margin contraction of 110bp on a YoY basis due to high RM costs and negative operating leverage. For staple companies under our coverage, we expect sales growth of 5%, while EBITDA may remain flat YoY and PAT is likely to grow 2% in 2QFY26.

* Paint & Adhesives companies are still struggling with muted demand and elevated competitive intensity. The Jul-Aug period was weak and a minor recovery was noted in Sep. Similar to last year, there can be a curtailed festive period due to extended monsoon and early Diwali. Non-decorative products have seen higher volume growth, but revenue growth for most companies is expected to be flat. We still build in a 400bp gap between volume and revenue growth due to an adverse product mix. EBITDA margins are likely to remain range-bound due to the impact of negative operating leverage. We build in sales/EBITDA/PAT growth of 3%/10%/8% for our coverage companies in 2Q.

* Liquor: UNSP's P&A portfolio is expected to see healthy volume growth in 2QFY26, partly owing to a low base in 2QFY25. Maharashtra duty increase has been impacting demand and mix (downtrading), and we need to see the full impact after the launch of Maharashtra Made Liquor (MML). Radico is expected to sustain robust volume-led revenue growth. UBBL is likely to report weak revenue growth, driven by early onset of monsoon and a weak summer season. Slow volume growth is expected to lead to operating deleverage, thus weighing on EBITDA margins. We expect sales/EBITDA/PAT growth of 9%/10%/13% for our coverage companies in 2QFY26. ? Innerwear companies have been impacted by soft demand in Jul-Aug, though a slight demand recovery was witnessed in Sep, partially supported by early Navratri. PAGE has geared up well for product launches, along with marketing and technology, though growth is expected to trend below its double-digit potential and guidance. We expect urban consumption to gradually recover and normalized trade inventory to aid better primary growth. Primary and secondary sales are now expected to be aligned, reversing the trend observed in the last few quarters. We expect sales/EBITDA/PAT growth of 6% each for PAGE.

* QSR: The overall demand environment remained soft in 2QFY26. While demand sentiment was healthy at the start of the quarter, it was adversely impacted in Sep. Severe rainfalls, Shradh, and festivities like Navratri weighed on demand. Weak underlying growth, negative operating leverage and continued store expansion may keep operating margins under pressure. This will put pressure on restaurant and EBITDA margins for most brands. The dine-in channel’s performance and the revenue gap between dine-in and delivery will be a key monitorable during the quarter. Innovative launches and activation drives for dine-in can be crucial for improving footfall/orders going forward. We expect SSSG to be in negative trajectory for most QSR companies and sales to be driven by store additions. Sales should grow 10%, while EBITDA/APAT are likely to decline 13%/1% for our coverage QSR companies in 2QFY26.

* Jewelry: In 2Q, gold prices surged by ~45% YoY and ~8% QoQ, crossing the INR100,000 mark (per 10gm) in the retail market, driven by multiple global and economic factors. This price surge has led to consumer budget constraints, with many customers choosing to delay purchases in anticipation of a price correction or stabilization. This will lead to continued softness in demand in 2QFY26. Moreover, the base is strong as there was a custom duty cut on gold (from 15% to 6%), leading to strong demand momentum then. SSSG is expected to grow in low double-digits to mid-teens, primarily driven by pricing growth. Checks suggest healthy demand recovery at the end of Sep due to the early festive season. We build in sales/EBITDA/PAT growth of 16%/24%/29% for our coverage jewelry companies in 2QFY26.

* Outperformers and underperformers: Among our coverage companies, MRCO, JUBI, Kalyan Jewelers, and PNG are expected to be outliers in 2QFY26, whereas Asian Paints, Emami and Devyani/Sapphire will likely be the underperformers.

* Outlook: We have been witnessing consumption pressure for most markets and segments over the last 12-24 months, impacted by high inflation, interest rates and weak wage growth. Multiple measures have been initiated by the government, and we expect steady improvement in demand from 3QFY26 onward. Once the consumption cycle turns positive, we expect the momentum to sustain over the medium term. Our top picks are HUL, Marico, PN Gadgil, Radico and RBA.

Raw material prices remain stable

Commodity prices have largely remained stable during the quarter. We expect staple companies to see some sequential GM expansion; however, margin pressure will continue on YoY basis. While agricultural commodities remained a mixed bag, prices of non-agricultural commodities, including crude oil, its derivatives, TiO2 and VAM, continued to moderate. However, select commodities such as gold and copra continue to see inflationary pressure. Overall, RM inflationary pressure is likely to ease out in 2HFY26.

* Agricultural commodities: Wheat prices are flat YoY but up 4% QoQ. Barley prices rose 4% YoY and 1% QoQ. Sugar prices increased 4% YoY and remained flat QoQ. Coffee prices increased 2% YoY and 1% QoQ, while Cocoa bean prices have started to ease and were down 7% YoY and 15% QoQ, offering relief to companies like Nestlé and HUL. Copra prices surged 122% YoY and 39% QoQ, while palm oil prices are up 7% YoY and 5% QoQ.

* Non-agricultural commodities: These commodities have seen moderation in prices. Crude oil prices are down 14% YoY. Other commodities like TiO2 and TiO2 (China) continue to show a downward trend. VAM (China) prices continued to fall, correcting 4% both YoY and QoQ. Gold prices jumped 43% YoY and 8% QoQ, putting pressure on the margins of jewelry companies.

* Companies remain focused on normalizing the gap between volume and value growth while prioritizing a strategic balance between revenue growth and margin expansion amid evolving market dynamics. This approach aims to navigate cost pressures effectively while maintaining competitive positioning.

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