The gains in FMCG stocks came as media reports suggested that the government is looking to slash goods and services tax (GST) on select consumer products to 5%.
MCG stocks: The shares of fast-moving consumer goods (FMCG) makers such as Colgate, Britannia, Hindustan Unilever and ITC, among others, traded on a firm note on Friday in an otherwise muted Indian stock market. The gains in these FMCG stocks came as media reports suggested that the government is looking to slash goods and services tax (GST) on select consumer products to 5%.
According to a CNBC-TV 18 report, the central government has proposed lowering GST on face powder, hair oil, shampoo, toothpaste and soaps to 5%, thus driving a rise in stocks of these companies.
Colgate share price rose as much as 4% to the day's high of ₹2,357.90 on the NSE. Britannia, ITC, Dabur, Patanjali Foods, Emami and Marico emerged as other top gainers, rising between 2% and 3%.
As a result, the Nifty FMCG index jumped as much as 1.7% to 56,565 in intraday deals today. Despite the hefty stock market selloff seen in the Indian stock market this week, the FMCG index has managed to eke out a nearly 1.5% gain, suggesting underlying investor interest in the sector amid GST rationalisation hopes.
GST cuts to drive demand
According to Anand Rathi Research, the recent announcement of the proposed GST re-jig would result in the shifting of many products into lower tax slabs, reducing the tax incidence. This will drive product prices down and generally boost consumption.
It expects many FMCG products in the 12% GST tax bracket—butter, ghee, cheese, juices, ketchup, jams, noodles, and pasta namkeens, certain chips, masalas, etc.—to move to 5%, which would lead to lower prices and might drive higher volumes, the brokerage noted. Further, some essential products in the higher 18% tax bracket could also potentially move down to the lower 5% tax bracket, it added.
Earnings for FMCG companies improve
GST booster aligns with earnings recovery, which bodes well for FMCG companies.
In Anand Rathi's analysis, the Q1 revenue of 12 FMCG companies (excluding ITC) grew 7%, up from 6% in the prior quarter and ~5% in FY25. Most FMCG management commentaries, though, were optimistic about better revenue trajectories, aided by rural demand outpacing urban, distribution expansion and/or launches. They expect urban demand to improve, more so from Q2 or H2 FY26.
The brokerage now expects revenues of the FMCG companies it covers to gradually recover to 9% in FY26, led by volume growth.
With most FMCG stocks having risen 5-20% over the past six months, the brokerage believes valuations have now aligned fairly with past averages, and returns will be linked to earnings.