FMCG Sector: Recovery delayed, not denied, says Phillip Capital; lists 4 top picks ahead of Q4 results

India’s fast-moving consumer goods (FMCG) sector has lagged broader market indices over the past five years, weighed down by stagnant growth and macro headwinds. According to brokerage house Phillip Capital, the upcoming Q4FY25 results are unlikely to alter investor sentiment materially, as the quarter is expected to be modest at best. However, the brokerage believes that most concerns are already priced in, with Nifty FMCG index currently trading at 37x one-year forward earnings, broadly in line with its five-year average.

Q4 Likely to be Weak, But Not a Game-Changer for Sentiment

Phillip Capital expects volume growth across its FMCG coverage universe to remain in the low-to-mid single digits in Q4FY25, with a median topline growth of 5.8 percent, driven largely by pricing rather than underlying demand revival. Margin pressure is set to persist due to elevated raw material prices—especially palm oil, wheat, cocoa, and copra—which could result in a 3.2 percent YoY decline in median EBITDA and a contraction of around 180 basis points in margins.

While companies like Marico and Tata Consumer may register double-digit revenue growth, the brokerage said their earnings will remain under pressure due to continued margin stress. On the other hand, Dabur and Hindustan Unilever are expected to post the weakest volume growth among peers.

Cautiously Optimistic for FY26 Recovery

Despite a weak near-term outlook, Phillip Capital maintained a cautiously optimistic view for FY26. The brokerage cited normalising macro factors—including stabilising CPI inflation, easing raw material prices, and a likely pick-up in rural demand driven by another good monsoon—as tailwinds for a gradual recovery. It added that the Union Budget’s income tax relief could further stimulate consumption in the latter half of FY26. The firm forecasts a median sales growth of 9.6 percent for its FMCG coverage universe in FY26 (versus 6 percent in FY25) and EBITDA growth of 13.5 percent (versus 1 percent in FY25).

However, the firm has cut its FY26–27 EPS estimates by up to 4.5 percent and marginally reduced target PE multiples due to prevailing weak sentiment. As per the brokerage, the key monitorables going forward would include rural distribution updates, trends in urban mass-market demand, premium segment momentum, and raw material price movements.

FMCG Outperformance Signals Strength Amid Market Volatility

Phillip Capital further noted that the FMCG sector has outperformed broader markets over the past month, with the Nifty FMCG index rising 2.6 percent compared to a 1.7 percent decline in the Nifty50. This, it said, reflects the sector’s relative resilience during uncertain market conditions. Nevertheless, the brokerage advised a selective approach, favouring companies that are adapting to evolving consumer preferences through product innovation and deeper distribution.

Top Picks: GCPL, Marico, Tata Consumer, and Britannia

Godrej Consumer Products (GCPL) is among Phillip Capital’s top picks, driven by a strong rebound in homecare volume growth in Q4 and rising traction for its new RNF-based liquid vapouriser product. The firm said GCPL could surprise positively with high single-digit volume growth and double-digit value growth in FY26–27, supported by margin-accretive innovations. Trading at 42x 2-year forward PE, GCPL offers favourable risk-reward, according to the brokerage.

Tata Consumer Products is another high-conviction idea, with consistent performance in core segments such as tea and salt, as well as robust growth in new businesses like Capital Foods and Organic India. Phillip Capital expects the company to benefit from distribution-led expansion and softening tea prices, forecasting 10.4 percent sales and 18.4 percent EBITDA growth in FY26. At 50x 2-year forward PE, the stock trades at a 15 percent discount to its peak valuation.

Britannia Industries is seen retaining its mid-single-digit volume growth trajectory in Q4FY25. Phillip Capital said the company’s focus on product innovation and rural expansion should support margin expansion in FY26–27. The brokerage estimates 11 percent sales and 14 percent EBITDA growth in FY26. With the stock trading at 43.8x 2-year forward PE, roughly in line with its five-year mean, the risk-reward is deemed favourable.

Marico also finds a place on Phillip Capital’s preferred list, standing out for its sequential volume improvement and strong pricing-led topline growth. The firm highlighted Marico’s diversification success, with food and personal care segments (including digital-first brands) accounting for 21 percent of domestic sales. A planned 50 percent increase in direct distribution by FY27 is expected to boost revenue. At 43x 2-year forward PE, Phillip Capital said Marico offers an attractive investment proposition.

In conclusion, the brokerage stated that while a modest Q4FY25 may not immediately revive market sentiment toward FMCG stocks, the longer-term outlook appears more promising. Normalising macro pressures, supportive policy measures, and improving rural dynamics could set the stage for a more meaningful recovery in FY26, although risks from prolonged urban weakness and raw material inflation persist. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.