FMCG stocks gain as RBI cuts FY26 inflation est; GCPL, HUL rise up to 2%

The RBI MPC, on Wednesday, unanimously decided to cut the repo rate by 25 basis points, bringing it down to 6 per cent, from 6.25 per cent earlier.

Fast-moving consumer goods (FMCG) stocks were big gainers in a weak market after the monetary policy committee (MPC) of the Reserve Bank of India (RBI) cut the inflation forecast for FY26 to 4 per cent, from 4.2 per cent earlier, and saw urban consumption improving. The decision to lower the inflation forecast was on the back of robust agricultural output and falling crude oil prices.  

The positive trigger helped the Nifty FMCG index gain 1.8 per cent to close the day at 55,264.8. It was the only index to end in the green as most indices, including the benchmarks, closed with losses. The top gainer among consumer majors was Godrej Consumer Products, which saw a 3.8 per cent jump. Britannia Industries, Nestle India and Emami, were up 3 per cent each.  

The gains on Wednesday have added to the outperformance in FMCG stocks; the Nifty FMCG has been the best-performing index over the last one month with gains of 6.4 per cent. It leads the Nifty 50 by 7 percentage points over this period.   

The latest official data showed that India’s headline inflation as measured by the Consumer Price Index (CPI) dropped by a cumulative 160 basis points through January and February 2025, falling from 5.2 per cent in December 2024 to a seven-month low of 3.6 per cent in February.  

The decrease, according to  the RBI, was largely driven by a strong seasonal correction in vegetable prices. Additionally, food inflation rate dropped to a 21-month low of 3.8 per cent in February, while the fuel group continued to show deflation. 

The cut in the inflation forecast and lower inflation expectations would be a relief for a sector that has been struggling with muted volume growth and higher input costs over the past few quarters. Q4FY25 is unlikely to be any different. Preeyam Tolia and Suhanee Shome of Axis Securities  expect volume growth for FMCG companies to remain soft, continuing the trend seen in Q3FY25, 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. However, some of these concerns are already in the price, according to Anurag Dayal and Binay Shukla of PhillipsCapital.  

 

The Nifty FMCG price to earnings ratio is at 37.2 times the estimated 12-month forward earnings, compared to its 10-year average of 33x.  

The brokerage believes that the FY26 outlook is  positive as the cyclical drag from urban slowdown, high retail inflation, and increased raw material prices, starts to normalise. Rural demand momentum is expected to pick up pace too, aided by another good monsoon and tax incentives announced in the Union Budget.  

A key trigger has been the prediction of a normal southwest monsoon for India, despite a sluggish start, according to private weather forecaster Skymet. Low prices will offer FMCG majors additional levers on the cost and demand fronts, enabling them to boost volumes and retain existing pricing to enhance margins.