2024 in Review: Nifty FMCG falls 15% from peak, set for first annual drop in 4 years | Stock Market News

The FMCG sector faced a turbulent 2024, marked by considerable volatility. The year started on a weak note, with the sector declining by approximately 9% from January to March, as subdued rural demand and broader macroeconomic challenges weighed heavily on its performance.

From mid-April to September, the index rebounded sharply, gaining around 25%. This rally was fueled by optimism about a post-election recovery in volumes, anticipated government spending, and a forecast of a normal monsoon, expected to boost rural consumption.

However, the gains were largely erased in October and November as the FMCG sector faced multiple headwinds. A slowdown in urban demand and a sharp rise in palm oil prices weighed heavily on company margins, causing the index to drop by 10% in October—the largest monthly decline in six years. The downward trend continued in November, with the index falling another 2.4%, and extended into December, with a further decline of 2.36% so far.

Year-to-date, the index has corrected nearly 1%. If this trend continues through the rest of December, it will mark the first annual decline for the FMCG index since 2019. Notably, over the past 16 years, the index has never ended a calendar year (CY) with a drop exceeding 1.5%.

The sector’s worst calendar-year performance was in 2008, when the index plunged 20%. This year, the index has fallen 15% from its record high of 66,438, recorded in late September, making it the largest decline from a peak in a single calendar year based on available data.

Nifty FMCG index: Top gainers & losers

Among the 15 constituents of the Nifty FMCG index, seven stocks have recorded declines of up to 18% in CY24. Nestlé India leads the losers, with its share price dropping 17.9%, followed by Tata Consumer Products, HUL, Britannia, and P&G, which have all declined between 10% and 16.20% during the same period. Godrej Consumer Products has also shed 3.21% of its value year-to-date.

On the positive side, eight stocks have posted gains ranging from 1% to 54% in 2024. Radico Khaitan emerged as the top performer, surging 54%, while United Spirits and Balrampur Chini delivered impressive returns of 42% and 40%, respectively.

Other gainers include Varun Beverages, Marico, United Breweries, Colgate-Palmolive, and ITC, which have all advanced between 1% and 27% so far this year.

Twin challenges

Indian FMCG companies are currently grappling with twin challenges: rising commodity prices and weak demand from urban consumers, which severely impacted margins in the second quarter. Urban demand, which accounts for about two-thirds of the FMCG business, saw its volume growth more than halve in 2024 due to a rise in food inflation.

The sluggish job market, with limited new employment opportunities and lower disposable incomes, exacerbated the situation, making it increasingly difficult for urban consumers to maintain their previous spending levels.

The finance ministry’s monthly economic report highlighted a significant drop in volume growth in the FMCG sector, from 10.1% in Q1 to just 2.8% in Q2.

According to Japanese brokerage firm Nomura, wage expense growth among listed non-financial companies was just 0.8% in Q2FY25, compared to 10.8% in FY23. For instance, the IT sector has reduced recruitment, limited wage hikes, and resorted to layoffs.

The higher inflation has also prompted the Reserve Bank of India (RBI) to halt the rate cuts in its December meeting and revise its inflation projection for FY25 upwards by 30 bps to 4.8%. The inflation projection for Q3FY25 has been revised to 5.7%, up from the earlier estimate of 4.8%, while the forecast for Q4FY25 has been adjusted to 4.5%, an increase from the previous estimate of 4.2%.

The central bank expects inflation to remain elevated in the ongoing quarter, with a potential deceleration only in the fourth quarter of the current fiscal year due to seasonal correction in vegetable prices.

Will FMCG stocks recover in CY25?

Vinod Nair, Head of Research at Geojit Financial Services, stated that the FMCG industry has faced challenges over the past one and a half years. However, he highlighted that the outlook is set to improve due to favourable climate forecasts.

According to Nair, following a strong monsoon in 2024, food inflation is expected to ease in 2025, supported by a bumper Kharif harvest. The post-monsoon climate is also anticipated to be lucrative to Rabi cultivation, driven by a shift from El Niño to neutral or positive La Niña conditions and improved reservoir levels compared to the previous year.

“This is expected to have a dual benefit: improved rural demand and reduced food grain prices. A reduction in food inflation will drive an increase in urban disposable income and a reduction in input costs of FMCG players, thus increasing margins,” Nair explained.

He further added that urban demand is expected to rise as central and state government expenditures are likely to pick up in the second half of FY25 to make up for lower-than-budgeted spending in the first half. Additionally, volumes will be supported by the festive and marriage seasons in the short term.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.