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FMCG

Most FMCG companies under coverage are expected to report mid-singledigit revenue growth in Q2FY26, with rural markets outperforming urban regions amid persistent softness in urban demand. The quarter witnessed notable variations due to the GST 2.0 transition, an early festive season, and an extended monsoon. Unseasonal rainfall and early monsoon onset adversely impacted summer-centric categories such as beverages, ice cream, and talcum powder, which are likely to remain subdued in the near term.

While the GST 2.0 reforms are structurally positive and expected to drive long-term formalisation and consumption growth, the transition phase caused temporary disruptions across trade channels as distributors adjusted inventories to align with the revised tax framework

The operating backdrop remains challenging, with intensifying competition from regional players, the growing influence of D2C brands, and inventory liquidation pressures in the general trade. Further, elevated input costs—

particularly in palm oil, coffee, wheat, and cocoa — are expected to exert pressure on gross margins during the quarter.

Going forward, the growth trajectory is likely to strengthen, aided by the proconsumption thrust of GST 2.0, festive-led demand, and potential tailwinds from monetary easing, income tax benefits, and government initiatives aimed at enhancing disposable income. These factors are expected to revive consumption sentiment and drive a sustained demand recovery by H2FY26.

Margins, however, are expected to remain under pressure in the near term, given elevated raw material inventory costs, muted operating leverage, and short-term GST-led disruptions. That said, softening prices of key commodities could offer gradual margin relief from Q3FY26 onwards.

Considering these dynamics, Britannia and DOMS are expected to outperform peers within the FMCG universe, aided by their strong brand equity, efficient distribution, and agile cost management.

Retail

The retail sector is expected to post a mixed performance in Q2FY26, with discretionary categories likely to outperform staples-led segments. Value retailers such as V-Mart and D-Mart are positioned to benefit from improving demand in smaller towns and the early onset of the festive season, while premium players like Ethos are expected to sustain their growth momentum, supported by strong brand traction and resilient consumption among affluent customers.

In contrast, the organised sportswear and footwear segments continue to experience demand softness, with muted SSSG persisting despite a favourable base.

Looking ahead, the demand outlook remains positive for discretionary categories, driven by: 1) the recent GST rate reduction enhancing affordability, 2) the upcoming winter season expected to support apparel sales, and 3) favourable consumer sentiment likely to sustain discretionary spending.

Key Monitorable in Q2FY26E

We would watch out for the management commentary for both FMCG and Retail players on 1) GST 2.0 Reforms, 2) Views on urban demand recovery, 2) New product launches, 3) Raw material price trends, 4) Outlook on volumes and margins in FY26, and 6) Store opening guidance in this challenging environment for retail companies. We continue to closely monitor sustained signs of recovery, which will act as a key trigger for the revival of the entire consumer sector.

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