Foreign institutional investors (FIIs) were active sellers in fast-moving consumer goods (FMCG) stocks during the June quarter, as the sector continued to reel under the pressure of subdued financial performance, and analysts fear challenges may persist in the near term.
Of the 15 constituents in the Nifty FMCG Index, 11 companies have announced their June quarter shareholdings so far, and eight of these have seen a decline in foreign holdings while only two registered marginal gains. Patanjali Foods continued to report no FII holdings.
Among the top names witnessing significant foreign outflows, ITC led the pack with a reduction of 1.89 percentage points in FII stake, down to 37.98 percent in June from 39.87 percent a quarter ago. Colgate-Palmolive India and Varun Beverages followed closely with foreign investors trimming stakes by 1.84 percent and 1.12 percent, respectively. Dabur India, Hindustan Unilever (HUL), United Breweries and Godrej Consumer Products too reported FII stake reduction ranging between 0.2-0.8 percentage points.
ITC, Colgate-Palmolive, Dabur India, HUL and Britannia Industries have now seen three straight quarters of FII stake reductions, while Varun Beverages and United Breweries have registered two consecutive quarters of foreign selling. Godrej Consumer Products has witnessed a steady decline in foreign ownership for seven straight quarters.
Experts said the broader FMCG sector has seen a consistent de-rating as earnings continued to disappoint, with the June quarter marking the fourth consecutive quarter of muted financial performance. As a result, the forward price-to-earnings (P/E) multiples have slipped below their five-year and 10-year average historical mean. However, analysts believe a combination of supportive factors such as a favourable monsoon, softening raw material prices, easing liquidity and a low base could pave the way for a gradual recovery in earnings.
Urban consumption, which remained resilient post-Covid, has started to show signs of fatigue, weighed down by moderating economic growth and sluggish real wage hikes. This has had a direct impact on volume growth and operating margins for FMCG companies. While rural demand, initially the weak link, has started to stabilise with early signs of improvement, urban demand now poses fresh concerns, experts added.
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A key challenge for the companies has been a limited ability to push through price hikes, in part due to a sharp correction in input cost, and a shift in product mix. With premium products seeing lower traction and increased demand for value packs and low-priced SKUs, revenue growth has suffered. In some segments, aggressive discounts and promotions have further dented margins.
FMCG analysts have said that gross margin pressures have varied across companies and categories, driven by input cost volatility and cautious pricing. While EBITDA impact has remained relatively contained, gross margins have felt the brunt of inflationary and competitive pressures. Analysts, however, remain cautiously optimistic, expecting a gradual improvement in demand and margin dynamics, though challenges from competition and consumption trends may persist in the near term.
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