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CONSUMPTION DEMAND CONTINUES TO REMAIN TEPID

FMCG

Volume growth for FMCG companies under coverage is expected to remain soft, continuing the trend seen in Q4FY25, with rural markets outperforming urban regions due to persistent urban demand weakness. Input cost inflation, particularly in palm oil, coffee, wheat, and cocoa, is expected to drive price increases, thereby supporting top-line growth.

The operating environment remains challenging as companies face stiff competition from regional players, the increasing presence of D2C brands, and inventory liquidation pressures in general trade channels. Meanwhile, the summer season largely remained muted across the sector, impacted by unseasonal rains and an early monsoon. Summer-reliant categories such as beverages, ice cream, and talcum powder are likely to witness pressure this quarter.

Looking ahead, growth momentum is expected to be supported by monetary policy easing, income tax benefits, a healthy monsoon outlook, and government measures aimed at boosting disposable incomes, which could uplift consumer sentiment and drive demand recovery by H2FY26.

Margins are expected to stay under pressure due to elevated raw material inventory costs and subdued operating leverage. However, easing prices of certain key inputs could provide margin relief from Q2FY26 onward.

Considering the above factors, Britannia and DOMS are expected to outperform their peers in the FMCG pack.

Retail

The overall revenue growth trend for the Retail sector is expected to vary, reflecting a mixed-bag performance, as discretionary spending continues to remain subdued, especially in the urban segment. Recovery in smaller towns will lead to better performance for value retailers (D-Mart) while premium retailers such as Trent and Ethos are anticipated to maintain their growth momentum. However, OSR and Footwear remain under pressure on account of weak demand trends and tepid SSSG growth across the sectors despite a weak base.

Raw material price trends

Despite easing in key raw material prices, gross margins are likely to remain under pressure due to elevated-cost inventory and limited operating leverage. EBITDA margins may also contract, driven by increased advertising spends amid rising competition and efforts to stimulate demand. The effectiveness of recent price hikes will be a crucial monitorable in the upcoming quarters.

Key Monitorable in Q1FY26E

We would watch out for the management commentary for both FMCG and Retail players on 1) 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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