The shares of several FMCG companies dropped in trade for the second consecutive session on October 7, after a sharp rally earlier following GST reforms. Elara Capital in its note painted a subdued outlook for the sector in the upcoming Q2 earnings season.
The Nifty FMCG index dropped 0.53 percent (around 294 points) to close at 54,763.85 on Tuesday. The index has now fallen more than 0.7 percent (nearly 407 points) in these two sessions.
Britannia Industries and Tata Consumer Products shares were the top losers on the index, dropping nearly 2 percent each. Emami shares fell over 1 percent.
United Spirits and Dabur India shares dropped around 1 percent, while Nestle India, Hindustan Unilever (HUL), Patanjali Foods, ITC, Marico and United Breweries (UBL) shares were trading in the red with marginal losses.
Bucking the trend, Radico Khaitan shares gained more than 1 percent, while Colgate Palmolive, Varun Beverages and Godrej Consumer Products shares closed with marginal gains.
'Higher input costs are likely to weigh down margins in Q2'
Speaking about Q2 expectations, Elara Capital in its latest note said FMCG demand remained steady in Q2, but GST transition and an extended monsoon led to a temporary slowdown. It added that it expects a few companies to benefit from pricing-led growth, while others may face pressure due to sustained intensity in competition. “Higher input costs are likely to weigh down margins, with most companies likely to report a contraction in profitability. Our preferred picks within our FMCG coverage universe are Marico, Tata Consumer and Titan,” it said.
'Extended monsoon and GST shift can weigh down on short-term demand'
Elara explained how extended monsoon and GST shift can weigh down on short-term demand. "FMCG demand remained subdued sequentially in Q2FY26. Extended monsoons dampened household insecticide and beverages sales, as nearly 91% of sub-regions received normal to excess rainfall. In beverages, competitive intensity remains high, with incumbents resorting to promotions and discounts to protect share. The growth in rural India continued to be ahead of Urban. The recent rationalization in GST rate is set to boost consumer demand with most food and personal care categories taxed at 5% versus 12-18% earlier. However, companies have called out transitory impact on volumes in the near term, as trade channels focus on liquidating pre-GST inventory, leading to a temporary slowdown in secondary sales immediately after the announcement," it said.
Mixed trends in commodity prices like palm oil, coffee and more will also impact the earnings, the domestic brokerage added.
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