Top Conviction Ideas -“FMCG” by Axis Securities
We hope this message finds you well. As part of our continued efforts to help you identify high-conviction investment opportunities, we’re pleased to share our latest insights under “Top Conviction Ideas: FMCG” Our in-depth analysis indicates that while recent growth has been modest, the sector is well-positioned for a stronger rebound in the coming months. This presents a strategic opportunity to reassess your portfolio allocations, and we are confident that our recommended ideas can help you capitalise on the evolving market landscape.
Q1FY26 Review: Rural Strength, Price-led Growth
The FMCG sector delivered modest single-digit topline growth in Q1FY26, largely driven by price hikes and improving sentiment in select urban pockets. However, the standout has been the resilience of rural demand, which has stayed robust despite macro headwinds. Unseasonal rains weighed on summer-led categories like beverages and glucose. Nonetheless, management commentary across companies reflects optimism, with most anticipating volume recovery over the next 2–3 quarters, supported by easing inflation and improving macro indicators.
Urban markets, which contribute nearly 50–60% of FMCG sales, continue to face headwinds due to muted wage growth, higher EMIs, and stiff competition from emerging distribution formats like D2C and Q-commerce. Nevertheless, tax cuts, GST revisions on mass and aspirational goods, and an expected softening in interest rates are expected to revive demand in these regions.
At the same time, gross margins have been under pressure across the board due to elevated input prices, particularly in agri-commodities. This, coupled with subdued volumes, has kept EBITDA margins in check, warranting a cautious approach in the near term.
Outlook: Structural Growth Intact, Strong H2 Anticipated
Looking ahead, we maintain a constructive outlook for the FMCG sector. With rural inflation easing, higher MSPs, healthy monsoon projections, and increased government spending, we expect rural consumption to remain a key growth lever. Moreover, the upcoming quarters—particularly H2FY26—are expected to bring about a more broad-based volume recovery, fueled by seasonal tailwinds, improved consumer sentiment, and monetary policy support.
Importantly, the structural story of the Indian FMCG sector remains intact. Many categories remain under-penetrated, especially in Tier-II/III towns and rural areas, offering long-term expansion opportunities. In addition, the ongoing premiumisation trend is further expected to boost top line and profitability for companies catering to evolving consumer preferences.
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