India's FMCG Sector Under Pressure Despite GST Rationalisation: HSBC Report

India's fast-moving consumer goods (FMCG) sector continues to face pressure despite improvements in demand following Goods and Services Tax (GST) reductions, according to brokerage HSBC.

The brokerage noted that several leading consumer staples stocks have declined by as much as 19%, even as sector growth improved after the September quarter of the previous financial year.

HSBC attributed the weak stock performance to expensive valuations, insufficient growth acceleration and rising input costs.

It said investors may have shifted towards sectors offering stronger earnings growth prospects. Higher crude oil and palm oil prices have also weighed on consumer companies.

FMCG Growth May Slow Down In H2FY27

HSBC expects growth across its consumer staples coverage, excluding ITC, to moderate to 10% in the second half of the financial year 2026-27 (FY27), compared with an estimated 14% in the first half.

The brokerage believes the benefits of GST reductions could gradually diminish, limiting further demand acceleration.

It also identified persistent commodity inflation and the potential effects of El Niño as significant risks.

However, HSBC clarified that it did not consider El Niño responsible for the sector's earlier stock market weakness, as the extent of the monsoon shortfall became evident only towards the end of September 2026.

The brokerage expects input cost pressures to remain an important factor influencing profitability and investor sentiment.

Following its sector assessment, HSBC revised earnings estimates and recommendations for selected FMCG companies.

It upgraded Honasa Consumer, the parent company of Mamaearth and The Derma Co, to 'buy', citing a revised business strategy that could support brand expansion. Estimates for other companies remained unchanged.

HSBC said declining commodity prices could trigger a recovery in shares of Britannia Industries and Godrej Consumer Products Limited (GCPL).

However, it cautioned that lower input costs might not fundamentally improve their long-term growth or margin outlook.