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The Fast-Moving Consumer Goods (FMCG) sector is better positioned to deal with the current market uncertainties, says a report by Phillip Capital
Despite slow growth in recent years, the report stated that the sector may see improvement in the coming quarters. The report mentioned that the outlook for FY26 is more positive. Several factors may support a recovery in the sector. First, the impact of high inflation, slow urban demand, and costly raw materials is beginning to ease. Second, rural demand is expected to improve, supported by another good monsoon. Third, the tax benefits announced in the recent Union Budget are likely to boost consumption. In the past month, the FMCG index has risen 2.6 per cent, while the broader Nifty50 has declined by 1.7 per cent. This recent outperformance shows that FMCG stocks may offer some safety during uncertain market conditions. That said, the report expects only a slow recovery in FMCG volumes and profit margins. Because of this, it has cut earnings per share (EPS) estimates for FY26 and FY27 by up to 4.5 per cent. It has also slightly reduced the target PE multiples due to weak market sentiments. The report also forecasts a 9.6 per cent growth in sales in FY26 for the companies it covers, up from 6 per cent in FY25. EBITDA (operating profit) growth is expected to rise to 13.5 per cent in FY26 from just 1 per cent in FY25. According to the report, the Nifty FMCG index has underperformed the broader market over the last five years. Growth has remained weak over the past few quarters, and the fourth quarter of FY25 is also expected to be muted. This is unlikely to lift investor sentiment in the short term. It said "we believe that most concerns are already in the price (Nifty FMCG PE 37x, broadly in line with last 5year mean) and FY26 outlook seems positive. Further, recent outperformance of FMCG (Nifty FMCG +2.6% vs Nifty50 -1.7% in the last 1 month) suggests FMCG stocks are better positioned to navigate the ongoing market uncertainties, in our view". However, Phillip Capital report believed that most of the concerns around FMCG stocks have already been factored into their current prices. The Nifty FMCG index is trading at a price-to-earnings (PE) ratio of 37 times, which is in line with its five-year average. (ANI)
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