FMCG’s mixed bag: Rural strength masks urban slump in latest quarter

Fast-moving consumer goods (FMCG) companies are navigating a complex landscape. As these firms gear up to release their financial reports for the recent quarter, their earnings previews suggest demand patterns remain largely consistent with the December quarter. Analysts expect the industry to face dual challenges of rising input costs and sluggish urban demand amid a resilient rural performance.

According to market intelligence firm Bizom, the FMCG basket likely recorded 12% year-on-year volume growth in Q4FY25. Brokerage firm Nomura indicates volume growth is expected to remain stable in Q4, and largely unchanged from the previous quarter, showing only slight sequential improvement.

However, this positive outlook is tempered by persistent urban demand weakness, contrasting sharply with rural market outperformance. The rural-urban contribution divide, consistent throughout the fiscal year, likely persisted in the fourth quarter. Rural markets, contributing 30-40% to the FMCG sector's total sales, remained a crucial driver.

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A concerning surge in key raw material costs–despite input costs remaining stable sequentially– is necessitating additional price hikes, following the September quarter's increases. To what extent are ongoing price increases impacting consumer purchasing decisions? The market's sustained demand, despite rising prices, indicates consumers have absorbed the increased costs – at least for now.

The ongoing fiscal year will provide clearer insights into the sustainability of this price absorption. Analysts anticipate inflation to moderate further, potentially stimulating urban consumer demand in the coming quarters. Crisil Ratings expects the FMCG sector to see revenue rebound in the fiscal year 2026, compared to a modest expectation in the just-ended fiscal year on a gradual recovery in urban, and steady rural demand.

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That said, rising input costs have likely created margin pressures in Q4. Analysts at Elara Capital and Nomura note that most companies will face impacts as their price increases have not kept pace with inflation. A Mint analysis of previous quarterly results shows that the FMCG sector has withstood margin pressures despite challenges, likely through cost control measures. After experiencing some margin pressure in the September quarter, companies saw improvements in the subsequent December quarter. 

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