Tax Sops Fail To Cheer Consumer Stocks' As Rs 6-Lakh Crore Rout Deepens
Volumes in the third quarter continued to be impacted, led by price hikes by firms to combat inflationary pressures.
Indian consumer stocks have shrugged off the Rs 1-lakh crore tax benefits as their shares extended the longest losing streak ever recorded, disappointing investors who were anticipating a rebound after a bleak end to 2024.
The benchmark index — Nifty FMCG — is poised to end lower for the 14th consecutive session on Thursday, falling into the 'bearish' zone after tumbling nearly 21% from the peak last year.
Consumer companies have seen their market capitalisation erode over Rs 6-lakh crore since September last year, according to Bloomberg data. During the same period, the Nifty 50 fell by 12% as global funds continued to offload local equities.
Although the index saw a brief rally when Narendra Modi's government unveiled tax sops for the middle class to revive spending, the stocks resumed their fall later on. The FMCG stocks — with a 166-point loss —contributed the most to the fall in Nifty 50 in 2025.
Volumes in the third quarter continued to be impacted, led by price hikes by firms to combat inflationary pressures. Operating margins shrank for consumer goods majors, as rural demand was offset by weak urban sales.
The underperformance in the sector was driven by several factors like rising input costs, low rural demand slowdown, intense competition and a switch to health conscious products, according to Prashanth Tapse, senior VP research at Mehta Equities Ltd.
The market is overlooking the budget tax announcements which would benefit the space only in the long run, he said. As of now, the focus is on earnings and volume growth.
The sector's one-year forward valuations hold firm to the historical 10-year mean, but are at a discount of 11% to the five-year mean, analysts at Emkay Global Financial Services said in a note.
Arresting the earnings cut ahead would be key for valuations, Emkay said while maintaining an 'underweight' stance. Companies need to enhance execution and thus counter the dual stress of demand and inflation.
Heavyweight ITC Ltd. has lost around Rs 1.03 lakh crore in market cap so far in 2025, while alcohol names Varun Beverages Ltd. and United Spirits Ltd. fall by Rs 61,400 crore and Rs 23,500 crore, respectively.
Tata Consumer Ltd. and Nestle India Ltd. rallied the most this year, while eight of the 15 stocks traded under the so-called 'bearish' territory since September peak.
Union budget comes in as a great hope for a revival in consumption growth, which are expected to enhance and stimulate consumer goods demand, Tapse said. Post the correction it looks reasonably priced with limited rise on downside, he said.
Stocks like Godrej Consumer Products Ltd., Marico Ltd., ITC Ltd. and Colgate-Palmolive (India) Ltd. look good to accumulate for medium to long term, Tapse said.
