Investors Need One Or Two Quarters To Be Convinced Of FMCG Sector’s Revival: Goldman Sachs Analyst

After a prolonged period of sluggish performance, India's mass consumption sector may be on the cusp of a revival, according to Arnab Mitra, India Consumer Equity Analyst at Goldman Sachs. 

Mitra highlighted a series of tailwinds that could drive sustained growth in the fast-moving consumer goods (FMCG) sector, despite investor scepticism over its prolonged underperformance.

“I would say that the investor community will be quite data-driven on this, given the long underperformance the sector has had and a lot of expectations, which have not been met. We would probably need one or two more quarters of evidence for more people to be convinced that this is a realistically sustainable pickup,” he told NDTV Profit.

He drew a contrast between the current tailwinds to the headwinds in the past.

“We've had multiple headwinds in the past, whether it was Covid, or high food inflation. Compared to that, we've had a situation where government fiscal transfers have increased, food inflation has significantly moderated, we have had the income tax cut, and we will have the GST cut benefit come in. Potentially, we will have the Pay Commission playing out next year, or a year later,” he underscored.

The analyst pointed out that recent data shows a promising uptick in aggregate volume growth over the last two quarters. This broad-based demand recovery signals that the sector is turning a corner.

"It's not all in the future," Mitra emphasised, noting that the growth is broad-based across most categories, even with price increases.

When asked about the balance between discretionary spending and staples, the top executive said the long-term outlook favours discretionary goods over staples as per capita income rises.

However, from an investment perspective, the risk-reward ratio may currently be more favourable for staples.

“As an investor, from a risk-reward perspective, staple items are probably slightly better right now than discretionary, but over the medium term discretionary will grow a little faster, save for the risk of competition,” he underlined.

Mitra also highlighted the growing dominance of digital platforms like Zepto, Swiggy and Zomato, which are outpacing traditional retail and branded goods suppliers.

“Across many segments, we have seen the platforms do better than the brands and do better than other physical retail options. So that's something which is definitely a structural trend that's going to continue for many years. And it will, whether the macro is good or bad.”