FMCG Companies Struggle With Margins: Top Stocks to Watch

Intro – The FMCG Puzzle

The Fast-Moving Consumer Goods (FMCG) sector has always been a darling of cautious investors. It’s predictable, recession-resistant, and usually offers steady margins. But lately, even this safe haven is looking a little… squeezed.

Over the last year, the Nifty FMCG index has risen just 2%, while the Nifty50 surged over 9%. That’s like your dependable turtle suddenly deciding to nap mid-race.

So what’s happening?

Well, the sector is caught in a perfect storm: rising input costs, stubborn inflation, flat volume growth, and a demand slowdown in both rural and urban India. Add some competitive heat from local and D2C brands, and you’ve got a real recipe for margin pressure.

In this blog, we’ll break down why FMCG companies face margin pressure, what’s driving the decline, which companies are feeling the heat, and which ones might just come out stronger.

Let’s peel the layers off this (now very expensive) onion.

The Margin Pressure Explained

Margins in the FMCG sector are like the icing on the cake — sweet when things are stable, but the first to melt when the heat rises. And right now, things are melting fast.

🌾 Rising Raw Material Costs

The biggest punch in the gut? Inflation in raw materials.

• Palm oil, wheat, maida, tea, cocoa, and potato — the key ingredients for soaps, snacks, biscuits, and beverages — have seen sharp price spikes.
• For example, palm oil, widely used in soaps and packaged foods, saw a price surge due to poor crop yields in Indonesia and Malaysia.
• The Russia-Ukraine war, Israel-Hamas conflict, Recently India- Pakistan Tension and unpredictable weather (hello, untimely rains and droughts) have added fuel to the fire.

Now, FMCG companies did try to pass on the costs through price hikes — but there’s only so much a ₹10 biscuit packet can be stretched before customers say “no, thank you.”

🏭 Demand Weakness

At the same time, demand isn’t playing nice.

• India’s GDP growth slipped from 9.2% (FY24) to 6.5% (FY25).
• That slowdown is hitting household savings and consumption.
• Flat volume growth in both rural and urban markets confirms what we already fear: people are tightening their wallets.

So, we’re stuck in a brutal squeeze: input costs rising, but not enough demand to justify higher prices. Classic margin trap.

Read More About GDP Growth Rate Here: India’s GDP Growth Hits 4-Year Low: What’s Dragging Us Down?

📉 What Companies Are Saying

• Hindustan Unilever (HUL) cut its FY26 EBITDA margin guidance from 23–24% to 22–23%.
• Marico’s margins slipped from 21% to 20%.
• Britannia wasn’t spared either — margins fell from 18% to 16.4%.

Managements across the board are waving caution flags, signaling uncertainty ahead.

Competition Heats Up — And Not Just from the Big Guys

If rising costs and falling demand weren’t enough, there’s another headache for FMCG companies: cut-throat competition.

🛒 The New-Age Disruptors

While legacy giants like HUL, ITC, and Nestlé are busy protecting margins, agile D2C (direct-to-consumer) brands are going all in. Armed with Instagram ads, influencer marketing, and quirky packaging, these small brands are eating into niche but high-margin categories — personal care, organic foods, and health supplements.

Think of brands like Mamaearth, Wow Skin Science, and Slurrp Farm — they’re not scared of the big boys. In fact, they’re winning over younger, urban consumers who are craving natural, clean-label, and premium experiences.

🏪 Local Brands Go Aggressive

Meanwhile, small regional players — especially in categories like snacks, tea, and detergents — are capturing rural and semi-urban markets by offering cheaper alternatives with similar quality.

And let’s be honest — if a ₹5 packet of chips tastes good and fills the tummy, most price-conscious consumers won’t ask for the brand name.

🔄 So What Are Big FMCG Players Doing?

They’re not sitting idle.

• Premiumisation is the buzzword: Moving consumers towards higher-value branded products.
• Innovation is in overdrive: New SKUs, new flavors, new health-focused variants.
• Distribution is getting deeper: Into Tier 2, 3, and even Tier 4 towns.
• Digital transformation is being used to optimize supply chains and cut costs. Think AI-driven logistics, quick commerce tie-ups, and more.

In short, the biggies are evolving. But the pressure to defend both market share and margin is real and rising.

Signs of a Recovery and FMCG Stocks to Watch

Despite the storm, there’s a ray of hope on the horizon. India’s FMCG sector might be bruised, but it’s definitely not broken.

🌧️ Rain Brings Relief

The good monsoon forecast is expected to revive rural consumption. This, combined with government subsidies and rising MSPs, should put more money in farmers’ pockets — which often finds its way to FMCG shelves.

📉 Inflation Retreats

India’s retail inflation dropped to 3.16% in April 2025, the lowest in nearly six years. That’s a sigh of relief for FMCG companies battling raw material spikes. Lower inflation means lower input costs, better margin visibility, and possibly a boost in discretionary consumption.

💸 Budget Goodies

The Union Budget’s tax cuts are likely to improve urban disposable income. Higher spending capacity in urban India usually translates into higher demand for personal care, packaged food, and health products.

🛍️ Premiumisation & Product Innovation

Most FMCG majors are aggressively shifting towards branded, premium products, launching health-oriented, natural, and value-added items. They’re also tightening their cost belts through supply chain tech and e-commerce optimization.

Top FMCG Stocks to Watch

Here are the companies that look best positioned to weather the storm and ride the next growth wave:

🧼 Hindustan Unilever (HUL)

Despite short-term pain, HUL’s strong brand portfolio, rural reach, and premiumisation strategy make it a long-term winner. Management has guided cautiously, but the fundamentals remain rock solid.

🏹 ITC

With a diversified portfolio across FMCG, hotels, and paperboards, ITC is less exposed to any single disruption. Its food and personal care segments are growing well, and cigarette margins act as a buffer.

🧃 Nestlé India

Nestlé’s dominance in infant nutrition, coffee, and packaged food makes it a steady play. They continue to innovate with health-centric and convenience-based products, which are gaining popularity.

🧴 Marico

While Marico faced margin contraction, its strong presence in coconut oil, value-added hair oil, and urban D2C brands makes it a smart bet once raw material costs stabilize.

🍞 Britannia

With inflation impacting its core wheat and dairy inputs, margins took a hit. But Britannia is actively expanding rural distribution and pushing innovation in the bakery and snacking segment.

Conclusion

The FMCG sector may be feeling the heat from inflation, tepid demand, and intense competition, but this is not the first time it’s faced such challenges — and it won’t be the last.

With signs of cooling inflation, improving rural demand, and innovation driving consumption, long-term investors need not panic. Instead of broad bets, the smarter move is to cherry-pick companies that are adapting well — through product premiumisation, better distribution strategies, and digital transformation.

In uncertain times like these, it’s not about who falls — it’s about who gets back up faster and stronger. The FMCG giants may be down, but they’re certainly not out.

Understanding what’s driving FMCG Companies Margin Pressure today can help you spot tomorrow’s winners in the sector.

Want to research FMCG stocks deeper? Track, compare, and invest smarter using Angel One – India’s trusted investment app.

FAQs:

Q1: Why are FMCG companies facing margin pressure in 2025?
FMCG companies are struggling due to rising input costs, subdued demand, and increased competition. The price of key raw materials like palm oil, wheat, and cocoa has surged, squeezing profit margins.

Q2: How has inflation impacted FMCG companies?
High inflation in commodities has increased production costs. Though companies raised product prices, weak demand limited their ability to fully pass on costs, resulting in margin erosion.

Q3: Are FMCG companies seeing any signs of recovery?
Yes, companies expect rural recovery and easing inflation to support consumption. They’re also focusing on premiumisation, innovation, and cost control to improve margins in FY26.

Q4: Which FMCG stocks are worth watching in this situation?
Top FMCG companies like HUL, Britannia, and Dabur are adapting with strong brand equity, diversified product portfolios, and digital growth strategies, making them potential picks during this margin pressure phase.

Q5: Should investors buy FMCG stocks now?
Investors should be selective. Focus on FMCG companies with strong fundamentals, consistent cash flows, and a clear plan for navigating inflation and driving volume growth.

Related Articles

Shipbuilding Industry: Past, Present, and Future