Have FMCG Stocks Turned the Corner?

Above-normal monsoon, falling inflation and tax cuts bode well for consumer companies in FY26

- Abhishek Mukherjee

A well-worn, even if possibly apocryphal, anecdote from Wall Street is that during a prolonged bear market in the 1960s, a horde of disgruntled investors landed at the office of a famous stockbroker. What riled them was not the deep red shade of their portfolios, which after all was expected during a downturn, but the underperformance of their non-cyclical or defensive stocks. These stocks, belonging to sectors like utilities, consumer staples and healthcare, were sold with the express promise of providing stability during periods of market turbulence. The stockbroker had advised many of his clients to allocate as much as half of their corpus to such defensive scrips. When confronted with the disappointing performance of this portion of their portfolios, the stockbroker shrugged and offered what would soon become a classic quip: "Half of your portfolio is non-cyclic—the problem is, you never know which half."

It is not known whether his clients appreciated his comic flair, but for millions of Indian investors in the fast-moving consumer goods (FMCG) sector, the line currently hits uncomfortably close to home. India's FMCG sector has been an outlier for all the wrong reasons—first sitting out the bull market over the past two years, and then failing to live up to its defensive billing during the downturn, since October 2024. Does this set the stage for a long-overdue rebound in FMCG stocks? Or will investors be unlucky a third time? The recent March quarter (Q4) results offer some clues.

The Devil in Volumes

The most conspicuous trend of the just-concluded Q4 results season was a tepid demand environment reported by most FMCG firms, with urban growth continuing to remain weak while rural markets maintained their recovery.