FMCG volume growth seen soft, early monsoon dented demand for summer-related products, says Axis Securities

Mumbai, July 10, 2025 — India’s fast-moving consumer goods (FMCG) sector witnessed tepid volume growth in Q1 FY26, with early monsoons and erratic weather patterns stifling demand for summer-centric products, according to a recent report by Axis Securities. The brokerage noted that consumer off-take remained moderate despite favourable pricing strategies and a high base of comparison in the year-ago period.

Early Monsoon and Cooler Temperatures Impact Seasonal Categories

The FMCG industry typically sees robust sales of summer-related products such as beverages, ice creams, cooling appliances, and personal care items like talcum powders and deodorants during the April to June quarter. However, Axis Securities said the early onset of monsoon rains across most parts of India disrupted this pattern.

“Volume growth in the FMCG sector remained soft in Q1 FY26, largely due to a muted demand environment caused by erratic weather conditions,” the report stated. “The early arrival of the southwest monsoon led to cooler-than-expected temperatures, especially in North and Central India, which dented demand for seasonal products.”

The India Meteorological Department (IMD) confirmed that monsoon rains began nearly a week ahead of schedule and advanced rapidly across key markets. Several FMCG companies experienced shortfalls in summer sales as a result.

Category-Wise Impact: Beverages and Personal Care Hit Hardest

Analysts at Axis Securities highlighted a divergent impact across categories. Beverages and personal care products recorded the sharpest slowdown, while food staples and hygiene products showed relatively stable demand.

“Beverages—both carbonated and non-carbonated—saw a notable decline in volumes compared to last year. Personal care products like skincare and talcum powders also faced headwinds,” said Varun Singh, FMCG analyst at Axis Securities. “On the other hand, packaged food and home care segments continued to show modest growth, supported by urban consumption and rural price sensitivity.”

The brokerage also pointed out that discretionary spending remained cautious, especially in rural markets, as consumers prioritized essential over non-essential purchases.

Rural Recovery Still Patchy Despite Government Push

While some green shoots are visible in rural India, a full-fledged recovery remains elusive. Axis Securities noted that rising input costs and stagnant rural incomes continue to impact the demand trajectory, especially for mid-tier and mass-market products.

“The volume-led recovery in rural markets has not yet gained meaningful traction,” Singh added. “Despite government initiatives like increased rural capex and MNREGA allocations, the sentiment remains tepid. FMCG companies are yet to witness broad-based rural demand rebound.”

Data from NielsenIQ also supports this observation. According to its recent retail audit, rural FMCG volumes grew at 3.1% in Q1 FY26, compared to 4.7% in urban areas, indicating a slower recovery pace outside city limits.

Companies Take Defensive Pricing, Focus on Innovation

With inflationary pressures easing marginally, most FMCG companies have maintained stable pricing or even taken selective price cuts to boost volumes. However, the muted demand environment has pushed them to ramp up product innovation and distribution efficiency.

“FMCG players are increasingly focusing on launching value-for-money SKUs and expanding direct distribution channels in Tier-2 and Tier-3 cities to drive penetration,” said the Axis report. “We expect this strategy to yield results in H2 FY26 as festive demand kicks in.”

Additionally, the report emphasized increased marketing spends around new product launches, especially in health-focused and ready-to-eat categories.

Market Performance and Sector Valuation

Despite the weak volume growth, the FMCG index on the NSE has remained relatively resilient. Year-to-date, the Nifty FMCG index is up around 6%, supported by defensive buying amid broader market volatility. Major players like Hindustan Unilever, Nestle India, and ITC continue to trade at premium valuations, reflecting investor confidence in their long-term growth outlook.

“FMCG stocks remain an attractive defensive bet in times of uncertainty,” said Rahul Tiwari, equity strategist at Samarth Capital. “While near-term earnings may reflect softness, companies with strong brand equity and rural outreach will benefit once demand normalizes.”

Investor Outlook: Cautiously Optimistic

Axis Securities maintains a "Neutral" view on the FMCG sector in the near term but remains optimistic for the second half of the fiscal year. The brokerage expects volume growth to improve with the stabilization of monsoon patterns, upcoming festive season, and further revival in rural consumption.

“In H2 FY26, we anticipate a better growth trajectory supported by festival-driven consumption, stable commodity costs, and an expected pickup in rural incomes,” the report concluded. “Investors should focus on companies with a diversified portfolio, robust rural strategy, and consistent innovation.”