FMCG Sector Poised for Q3 Revival Led by HUL, ITC and Festive Momentum
The FMCG sector is positioned for Q3 recovery with DRChoksey expecting large-cap leaders like HUL, ITC, Nestle India, Asian Paints, and Britannia to benefit from festive demand and GST destocking normalisation. Citi supports this outlook, forecasting sequential growth improvement driven by GST rate cuts, inventory recovery, and margin pressure relief as commodity costs soften.
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The consumer staples sector is witnessing renewed optimism as multiple brokerages forecast a recovery in Q3, driven by festive demand and normalisation of inventory cycles. DRChoksey expects large-cap leaders such as Hindustan Unilever, ITC, Nestle India, Asian Paints, and Britannia Industries to benefit from festive-led demand recovery and GST destocking normalisation in Q3 FY26.
Citi's Sequential Growth Expectations
Global brokerage firm Citi expects India's consumer staples sector to witness sequential improvement in growth momentum during the third quarter, marking a potential turnaround after several sluggish quarters. The anticipated recovery is attributed to lower prices across categories following GST rate cuts, higher grammage in low-unit packs, and partial recovery from inventory destocking observed in September-October.
Margin Pressures Expected to Ease
Profitability pressures that have affected the sector over the past year may finally be subsiding. Citi forecasts EBITDA margins for its coverage universe to remain flat year-on-year, representing a significant reversal from the declines witnessed over the past four to five quarters. This improvement is expected as costs soften across multiple commodities.
| Recovery Drivers: | Impact |
|---|---|
| GST Rate Cuts: | Lower prices across categories |
| Inventory Normalisation: | Reduced destocking impact |
| Festive Demand: | Seasonal consumption boost |
| Commodity Softening: | Margin pressure relief |
Sector Preferences and Investment Strategy
Citi maintains a selective approach, preferring companies supported by strong self-help initiatives. The brokerage's investment strategy favors food and beverages over home and personal care segments, with three companies identified as top picks:
| Company: | Sector Focus |
|---|---|
| Britannia: | Food and Beverages |
| Godrej Consumer: | Consumer Products |
| Varun Beverages: | Beverages |
Conversely, Citi lists Dabur, Colgate India and United Breweries among its key sells, while showing preference for non-alcoholic food and beverages categories.
Key Performance Indicators for Results Season
Citi has outlined several critical indicators to monitor during the upcoming results season, including commentary on consumer sentiment and urban demand recovery, early evidence of sustained demand improvement from GST rate cuts, competitive intensity as companies increase promotions to drive volumes and market share, and management initiatives including route-to-market changes, portfolio expansion, innovation and higher brand spending.
Individual Company Outlook
Britannia is positioned as the biggest beneficiary of GST rate cuts, with 65.00-70.00% of revenue derived from low-unit packs. Benefits are expected from higher grammage at ₹5/₹10 price points, while Citi views concerns around the CEO transition as overdone. Godrej Consumer is projected to deliver 11.00% India sales growth with 9.50% underlying volume growth and 20.00% annual growth in India EBITDA. Varun Beverages is anticipated to achieve 9.00% India volume growth, which could address market-share concerns, with investors focusing on new initiatives in India and Africa markets.
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