FMCG Stocks Surge as RBI Cuts FY26 Inflation Forecast to 4%; Emami, Nestle, HUL Lead Rally

Fast-moving consumer goods (FMCG) stocks experienced a surge in momentum within a generally weak market. The surge occurred soon after the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) revised the inflation forecast for the financial year 2025-26 down to 4%, a decrease from the earlier projection of 4.2%. The RBI has also noted an improvement in urban consumption.

RBI's Inflation Projections and Repo Rate Cut

The RBI stated that the Consumer Price Index (CPI) inflation for FY26 is projected at 4.0%, with quarterly forecasts of 3.6% for Q1, 3.9% for Q2, 3.8% for Q3, and 4.4% for Q4. The risks associated with these projections are considered to be evenly balanced. Notably, the RBI had previously forecasted higher CPI for Q1FY26 at 4.5% and Q2FY26 at 4%, but increased the Q4FY26 estimate from 4.2%. Furthermore, the RBI MPC unanimously decided to reduce the repo rate by 25 basis points, bringing it down to 6% from 6.25%.

Market Reaction and Individual Stock Performance

Following the RBI's announcements, the FMCG index saw a significant increase, surging up to 1.75% to reach an intraday high of 55,250.50. Several individual FMCG stocks showed strong rallies. Emami was a leading gainer, rising by up to 3.68% and hitting an intraday high of ₹603.60. Nestle also performed strongly, gaining 2.77% to reach ₹2,338.

Broad Gains Across FMCG Sector

Other prominent FMCG companies also experienced positive movement. Godrej Consumer rose by 3.32% to ₹1,237.00, HUL increased by 2.54% to ₹ 2,347.35, and Britannia climbed by 2.89% to ₹5,330. Dabur saw an increase of 1.70% to ₹466.80, Tata Consumer rose by 1.78% to ₹1,089.25, and Colgate Palmolive advanced by 2.79% to ₹2,508. Other stocks in the sector, including ITC (up 0.82%), UBL (up 0.66%), United Spirits (up 1.93%), Marico (up 2.86%) also recorded gains.

Recent Trends in CPI Inflation

RBI data indicated a substantial drop in CPI headline inflation between January and February 2025, with a cumulative decrease of 1.6 percentage points. Inflation fell from 5.2% in December 2024 to a low of 3.6% in February 2025. According to the RBI, this decrease was largely attributed to a significant seasonal correction in vegetable prices. Food inflation also fell to a 21-month low of 3.8% in February, while the fuel group continued to experience deflation. Core inflation, which had been stable in December 2024 and January 2025, saw a slight increase to 4.1% in February 2025, primarily due to a significant rise in gold prices.

Positive Outlook for Food Inflation

The RBI has a notably positive outlook for food inflation, anticipating continued seasonal corrections in vegetable prices. Concerns surrounding rabi crops have diminished, and the second advance estimates suggest record wheat production, along with increased production of key pulses compared to the previous year. Coupled with strong kharif arrivals, these factors are expected to contribute to a sustained moderation in food inflation.

Declining Inflation Expectations and External Factors

Inflation expectations for both the next three months and the next year have decreased sharply, which is anticipated to help stabilise inflation expectations going forward. Furthermore, the recent decline in crude oil prices is expected to positively influence the inflation outlook. However, the RBI cautioned that global market uncertainties and the potential for adverse weather-related disruptions could present upside risks to inflation.

Monsoon Prediction as an Additional Supporting Factor

Another factor that may have contributed to the rally in FMCG stocks is Skymet's prediction of a normal southwest monsoon for India, despite a slow start.

Impact of Rate Cuts on FMCG Stocks

Generally, FMCG stocks tend to perform well after a rate cut. Lower interest rates can stimulate consumer spending and overall economic activity, which can lead to increased demand for FMCG products, as these are essential daily goods. As of 2:14 PM, the Nifty FMCG index was trading 1.67% higher at 55,205, while the Nifty50 index was trading 0.59% lower at 22,401.80.

Disclaimer: This news is solely for educational purposes. The securities/investments quoted here are not recommendatory.

To read the RA disclaimer, please click here