Investors are weighing the outlook for consumption stocks as the sector shows signs of improvement but faces pressure from rising input costs. Market experts advise looking beyond headline sales growth when considering FMCG, consumer durables, and discretionary stocks. While rural demand is gradually strengthening and select companies are reporting healthier volumes, the sustainability of this recovery remains uncertain.
Margin pressures loom
Rising crude prices and costlier packaging materials threaten to squeeze margins in the coming quarters. Preeyam Tolia of Choice Institutional Equities expects revenue in Q2FY27 to remain stable, but margin performance is likely to stay under pressure. The benefit from lower cost inventory seen in the previous quarter is moderating, and higher input costs, particularly crude-linked derivatives, are expected to weigh on sector margins.
Tolia noted that Home and Personal Care companies will likely be impacted more than food-focused FMCG players. Most firms have already implemented mid-single-digit price hikes, but further raw material cost increases and the possibility of a below-normal monsoon could weigh on volume growth going forward.
Where analysts see value
Vincent K A of Geojit Investments highlighted improving demand trends alongside persistent commodity cost risks. He pointed to recent industry trends showing encouraging conditions in rural markets, with premium and convenience-led categories outperforming. Quarterly results are expected to offer greater clarity on sales momentum and profitability.
Amid this uncertainty, analysts recommend a staggered investment approach. Sunny Agrawal of SBI Securities advises focusing on companies delivering genuine volume growth rather than relying primarily on price increases. He favors Marico, ITC, Hindustan Unilever, and Britannia on a risk-reward basis.
Investors typically look for durable volume growth rather than temporary price spikes, yet many consumption stocks are already adjusting pricing structures to offset rising production expenses. This dynamic often forces a shift in strategy from simply buying popular brands to analyzing the underlying cost structures and volume sustainability of individual companies.
Vincent also highlights Nestlé India, Tata Consumer, and Britannia, citing product innovation, premiumisation, and distribution expansion as key growth drivers. Preeyam Tolia is positive on Bajaj Consumer Care and Varun Beverages, pointing to intact long-term growth drivers and a recent correction that offers an opportunity for long-term investors.
