Godrej Consumer, Emami, Nestle: FMCG stocks rally in weak market; two reasons why the sector is bucking broader trend

FMCG stocks rallied on Wednesday, April 8, during the intraday period despite the equity market remaining under pressure.

The sector became attractive as the Reserve Bank of India (RBI) lowered the inflation projection to 4% for the financial year 2025-26.

The inflation projection was earlier at 4.2%.

Consumer Price Index (CPI)-based headline retail inflation declined by a cumulative 1.6 percentage points during January-February 2025, from 5.2% in December 2024 to a low of 3.6% in February 2025.

On the back of a strong seasonal correction in vegetable prices this year, food inflation dropped to a 21-month low of 3.8% in February.

Unveiling the first bi-monthly monetary policy of financial year 2025-25, RBI Governor Sanjay Malhotra said the outlook for food inflation has turned decisively positive.

"On the inflation front, while the sharper-than-expected decline in food inflation has given us comfort and confidence, we remain vigilant to the possible risks from global uncertainties and weather disturbances," the governor said.

Post this, FMCG shares were trading higher, though the main equity indices were in the red.

The NIFTY FMCG sector was up 1.72% at the time of writing this article, while the consumer durables sector marginally edged up by 0.02%.

However, Varun Beverages, Patanjali and Radico shares remained under pressure, falling as much as 0.22%.

At 1:20 PM, SENSEX was trading at the 73,880.25 level, declining 346.83 points, or 0.47%, while NSE NIFTY50 was down 122.20 points, or 0.54%, at the 22,413.65 level.

Another reason behind the sector's rally is that the ongoing economic uncertainty also led market investors rush towards this defensive sector.

A scrip is called defensive when it provides consistent dividends and stable earnings regardless of the overall state of the stock market. The FMCG sector is considered one of the evergreen ones.

On inflation, the central bank further said that a sharp decline in expectations for the three-month and one-year ahead periods would help anchor inflation expectations going ahead.

On the other hand, there are concerns that lingering global market uncertainties and the recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory.

Taking all these factors into consideration, and assuming a normal monsoon, Malhotra said CPI inflation for the financial year 2025-26 is projected at 4%, with Q1 at 3.6%, Q2 at 3.9%, Q3 at 3.8%, and Q4 at 4.4%. The risks are evenly balanced.