Motilal Oswal sector of the week: FMCG; check top stock picks, targets

India’s fast-moving consumer goods sector is entering FY26 on firmer ground, with policy support, improving macros, and easing commodity headwinds setting the stage for a recovery after three muted years. The sector posted 10 per cent revenue growth in the June quarter, a notable improvement from the 5–6 per cent range seen in FY24 and FY25, underpinned by stronger volumes. While margins remain under strain due to elevated costs of inputs like palm oil and copra, companies have taken price hikes and expect gross margin recovery from the December quarter as commodity pressures ease.

 

Rural markets, which had languished through much of 2022 and 2023, are now outperforming urban areas. A good monsoon, higher agricultural wages, and stepped-up government spending are supporting a steady revival. Urban demand, which slowed over the past year under the weight of inflation and rising interest rates, is showing early green shoots. With inflation easing, borrowing costs falling, and recent income tax relief bolstering household savings, a clearer turnaround is expected in the second half of the fiscal year.

 

 

Policy measures remain central to the consumption upturn. The government’s intent to simplify the GST framework into a two-slab system of 5 per cent and 18 per cent is likely to ease the burden on everyday essentials, providing a meaningful boost to household budgets. Alongside tax relief, these steps reinforce the focus on accelerating discretionary spending and broadening the recovery.

 

At the industry level, companies are reorienting strategies to tap both mass-market and premium segments. Increased investments in digital marketing, influencer-led outreach, and product innovation are aimed at capturing younger, more affluent consumers, while distribution-led initiatives target deeper rural penetration. Mergers and acquisitions in health, wellness, and digital-first brands further signal a shift toward aligning portfolios with evolving consumption themes.

 

The medium-term outlook is more constructive than in recent years. Analysts expect a 200–500 basis point acceleration in volumes from the second half of FY26, supported by stable raw material costs and an improved volume-value mix. Earnings delivery, muted for the last 8–10 quarters, is set to strengthen meaningfully as pricing, cost discipline, and demand recovery converge. Against this backdrop, the FMCG sector looks positioned to reassert its role as a key driver of India’s consumption story, with sensitivity to policy reforms and macro improvements offering a favorable setup for the next phase of growth.  Track Stock Market LIVE Updates

Hindustan Unilever (HUL) – Target Price: ₹3,000

Hindustan Unilever posted 5 per cent Y-o-Y revenue growth in Q1FY26 at ₹16,510 crore, led by 4 per cent underlying volume growth supported by rural recovery and early signs of urban demand revival. The company continues to focus on driving volume-led earnings, even if near-term margins stay under pressure, reflecting a clear strategy to build sustainable growth. Under its new CEO, HUL is sharpening execution with a strong focus on new launches and value-led propositions to strengthen its core categories. Importantly, GST reforms that cut tax rates on key staples should further boost mass-market consumption, providing additional support to volumes. We model a revenue/Ebitda/APAT CAGR of 7 per cent/7 per cent/8 per cent over FY25–28E.

 

Marico – Target Price: ₹825

Marico delivered a strong start to FY26 with 23 per cent revenue growth in Q1, driven by 27 per cent domestic growth (9 per cent volume) and 12 per cent international growth (+19 per cent CC). Core categories performed well, while Foods and Premium Personal Care continued to gain traction. The company is targeting double-digit growth in FY26 through pricing actions, wider distribution, and Project SETU. Market share gains and sustained international momentum add further comfort. Importantly, GST reforms that reduce consumer tax burdens are expected to support demand recovery, giving Marico additional tailwinds. We model a 13 per cent/12 per cent revenue/Ebitda CAGR over FY25–28 and maintain a Buy rating.

 

(Disclaimer: This article is by Motilal Oswal Financial Services Research desk. Views expressed are their own.)