HUL, ITC, Varun Beverages To Drive FMCG Q3 Revival; DRChoksey Bets on Festive Momentum

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DRChoksey Report

The fast moving consumer goods sector is poised for a meaningful recovery in Q3 FY26, according to DRChoksey, as GST-related disruptions normalise and trade restocking gains momentum. The festive season, led by Diwali, is expected to drive demand across categories, while rural sentiment improves with stabilizing weather conditions.

Companies are guiding for steady volume growth from November, supported by easing input costs, premiumisation, brand investments, and new product launches.

Large-cap leaders such as Hindustan Unilever Ltd., ITC Ltd., Nestle India Ltd., Asian Paints Ltd., and Britannia Industries Ltd. are likely to benefit from festive-led demand recovery and GST destocking normalisation in Q3 FY26.

Discretionary and seasonal segments — beauty, packaged foods, beverages, and decorative paints — are likely to see stronger traction, aided by brand strength and premium offerings. Softer commodity costs and operating leverage should support sequential margin gains. Overall, managements view Q3 as an inflection point toward sustained volume growth into FY27.

Mid- and small-cap players including Varun Beverages, Godrej Consumer, Colgate-Palmolive India, Tata Consumer, and Devyani International are projected to deliver relatively stronger momentum in Q3 FY26.

International operations provide diversification benefits, while domestic demand should improve in categories such as household insecticides, premium oral care, value-added foods, and QSR.

New launches, network expansion, and category extensions are likely to scale well during the festive period, with higher operating leverage helping these companies potentially outpace large-caps despite ongoing cost and competition pressures.

Top Picks:

DRChoksey maintains a positive stance on Varun Beverages, HUL and ITC, citing a well-balanced consumer portfolio that combines structural growth, margin resilience, and earnings visibility.

Varun Beverages offers superior growth visibility driven by strong international expansion (notably Africa), diversification into energy drinks, hydration and dairy, and improving operating leverage from backward integration.

HUL stands out for its premiumisation-led strategy, deep distribution strength, and stable Ebitda margins, while ITC provides a defensive-plus growth play anchored by resilient cigarette volumes, steady FMCG momentum, improving margins as input costs ease, and strong cash generation supporting consistent value creation.

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