For a sector built on predictability, FMCG stocks have delivered an unexpected outcome—steady earnings, but disappointing returns.
Stocks such as Hindustan Unilever, Nestlé India, Dabur India and Marico—long seen as compounding machines—have largely underperformed, even as their earnings held up. ITC has been an exception in phases, but not enough to shift the sector narrative.
The divergence between business performance and stock returns comes down to one factor: Growth. Over the past five years, the sector has delivered steady expansion in absolute terms, but the pace has slowed meaningfully, especially when compared to the double-digit growth that once defined it.
The financials illustrate this shift. Hindustan Unilever’s revenue has grown from about ₹38,000 crore in FY20 to roughly ₹60,000 crore in FY25, while net profit has increased from around ₹6,000 crore to ₹10,500 crore to ₹11,000 crore. Nestlé India has expanded revenue from roughly ₹12,000 crore to nearly ₹20,000 crore over the same period, with profit rising from about ₹1,600 crore to ₹3,500 crore. These numbers reflect stability, but also a clear moderation in momentum.
A similar pattern is visible across other large players. Dabur India’s revenue has moved from about ₹8,700 crore to ₹13,000 crore, with net profit rising from roughly ₹1,400 crore to under ₹2,000 crore. Marico’s topline has increased from around ₹7,300 crore to over ₹10,000 crore, while profit has grown from about ₹1,200 crore to ₹1,600 crore to ₹1,700 crore. For a sector used to consistent double-digit expansion, this shift to high single-digit—or even mid-single-digit—growth marks a structural slowdown.
The nature of growth has also changed. Much of the expansion between FY21 and FY24 was price-led rather than volume-driven, as companies passed on input cost inflation to protect margins. While this strategy helped preserve profitability, it came at the cost of demand. Consumers either down-traded to cheaper alternatives or reduced consumption, leading to muted volume growth across categories such as soaps, packaged foods and hair oils.
Margins, in contrast, have remained resilient, highlighting both the strength and the constraint of the business model. Hindustan Unilever continues to operate at margins of 23 to 25 percent, with net margins around 16 to 17 percent, while Nestlé India is in a similar range. Dabur India and Marico operate at slightly lower but still robust net margins of 11 to 13 percent. The ability to sustain margins through pricing power and cost discipline has supported earnings, but it has also reinforced the trade-off between growth and profitability.
“The entry multiples are too high, and these companies are delivering low volume growth. On the other hand, these companies want to maintain margins, leading them to continue to sacrifice on growth,” says Amit Khurana, chief executive at Nirmal Bang.
That trade-off has reshaped investor perception. For years, FMCG companies commanded premium valuations due to their predictability, strong cash flows and high return ratios. But as revenue and profit growth slowed, those premiums came under pressure, shifting the narrative from “defensive growth” to “expensive defensives”.
Even after this correction, valuations remain elevated. Large consumer companies continue to trade at significant premiums to the broader market, reflecting their balance sheet strength and market leadership. But this also means expectations remain high despite the slowdown in growth.
“I would still rate them as avoid,” says Anish Teli, co-founder of QED Capital Advisors. “While one could argue that they have stable ROEs and reasonable terminal growth, these businesses still don’t come in either the value quadrant or the growth quadrant.”
Yet, the narrative may be beginning to shift. There are early signs of a recovery in demand, particularly in rural markets. Moderating inflation, improved monsoons and continued government spending have begun to support consumption, leading to a gradual improvement in volume trends.
Urban demand remains resilient, though still skewed toward premium products. This ongoing premiumisation allows companies to sustain margins even as they attempt to rebuild volumes, creating a dual lever for growth.
If sustained, this could mark an inflection point. Volume growth is critical for a re-rating in consumer stocks, as it signals underlying demand strength and provides greater visibility on future earnings. Early indicators are encouraging, with several companies reporting sequential improvement in volumes and management commentary turning cautiously optimistic.
However, the recovery remains gradual, and risks persist. Competition has intensified with the rise of direct-to-consumer brands and regional players, while input cost volatility continues to pose a threat. Any sharp increase in commodity prices could once again force companies to prioritise margins over growth.
Valuations, meanwhile, leave little margin for error. With stocks still trading at premium multiples, even modest disappointments in growth or profitability can trigger sharp corrections. The sector’s risk-reward equation, therefore, remains finely balanced.
There is also a broader market dynamic at play. Over the past few years, capital has flowed toward cyclical sectors such as banking, capital goods and manufacturing, leaving consumer stocks relatively under-owned. Any rotation back into defensives—driven by global uncertainty or a slowdown in cyclicals—could provide incremental support.For now, the sector stands at a crossroads. The worst of the slowdown in revenue and profit growth may be behind, but a sustained, broad-based recovery is yet to be firmly established. Investors are likely to wait for clearer evidence of consistent volume expansion before re-rating these companies.
At the same time, there remains a case for long-term investors willing to look beyond near-term growth concerns. “An investment argument could be made out for investors looking for a steady business that is unlikely to be disrupted by AI,” says Pranav Bhavsar, co-founder at Trudence Capital.
That, ultimately, captures the sector’s central tension. These are high-quality, resilient businesses with strong fundamentals, but they are also expensive and currently delivering modest growth.
The Indian consumption story remains intact. But for FMCG stocks to outperform meaningfully again, stability will not be enough. They will need growth.
First Published: Mar 19, 2026, 12:23
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