FMCG stocks have been gaining traction in the lead-up to the 2025 Union Budget, as the sector eagerly awaits measures from the Finance Minister aimed at stimulating demand and spuring consumption growth. The mass-market segment, particularly in urban areas, has struggled in recent months due to high inflation, which has dampened consumption patterns and slowed sales growth for consumer companies.
So far this month, shares of HUL, Britannia, Godrej Consumer, Marico, Dabur India, Nestle India, Colgate Palmolive surged in the range of 1-7 percent. However, all of them have faced decline of up to 18 percent over the past 6 months.
Market experts emphasise that the Budget should prioritise simplifying income tax structures in a manner that could increase disposable incomes, besides enhancing rural infrastructure, and expanding direct benefit transfer programs. These measures could help revive consumer spending, particularly in the FMCG sector.
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Analysts at Axis Securities believe that revising income tax slabs could significantly bolster demand across consumer sectors. Tax relief for middle-class and salaried groups would lead to higher disposable incomes, encouraging greater spending on FMCG products.
A 5–7 percent rise in disposable income for middle-income households is projected to result in a 6 percent increase in consumer spending on essential goods, directly contributing to a 0.7 percent GDP growth, according to market experts.
According to Axis Securities, initiatives such as enhanced allocations under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and any targeted government schemes to increased farm and non-farm incomes will be essential to strengthen rural purchasing power. Investments in digital infrastructure, skill development, and MSME support will also be necessary to increase economic activity in rural regions.
Additionally, analysts advocate for higher capital expenditure on rural infrastructure and connectivity. This would help address underserved markets, stimulating demand and driving economic recovery.
Meanwhile, for urban areas, experts called for increased funding for urban development projects and the services industry. These efforts would create jobs, enhance remittances, and spur urban demand, supporting the FMCG sector’s growth prospects.
By addressing both urban and rural challenges, the Budget has the potential to unlock consumer spending, reinvigorate the FMCG sector, and contribute to broader economic recovery.
In the last fiscal quarter, urban sales volumes dropped sharply, with a decline of over 10 percent in mass-market segments in key metropolitan cities, according to a Deloitte report on Budget expectations.
This slump was largely driven by elevated food inflation, which has remained above the RBI's comfort level of 6.4 percent, and caused average consumption among lower-income urban consumers to fall by 15 percent.
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