FMCG to stage H1FY26 comeback on rural revival; durables defy headwinds with steady growth

After months of muted performance, India’s fast-moving consumer goods (FMCG) sector may finally be turning a corner. Aided by rural demand recovery, easing inflation, and steady pricing support, the sector is poised for a demand rebound in the first half of FY26, according to a report by ShriRam Mutual Fund. Meanwhile, consumer durables continue to hold investor interest over the long term, supported by structural growth drivers and resilient premium consumption trends.

“FMCG is poised for a demand rebound in H1FY26, aided by rural recovery, softening inflation, and supportive pricing,” says the report, adding that this comes after a period of mixed performance. Companies are now pinning hopes on a broader consumption revival—both in urban and rural markets—especially with input costs stabilising and distribution normalising post-summer.

The optimism is reflected in market performance. The Nifty FMCG index gained 5.33% over the past month (as of April 30, 2025), while the Nifty Consumer Durables index rose 4.06%. However, the report points out that gains over the past three months remain modest—up just 1.60% for FMCG and 1.09% for consumer durables—signalling ongoing investor caution, particularly around the pace of rural recovery in the FMCG space.

Over a six-month horizon, both sectors have seen corrections, with Nifty FMCG down 5.53% and Nifty Consumer Durables falling 6.30%, largely due to the impact of high interest rates and persistent inflation, which have weighed on discretionary spending.

Yet, in terms of long-term performance, consumer durables have edged ahead. The Nifty Consumer Durables index rose 7.13% over the past year, compared to a 4.06% gain in the FMCG index. The sustained interest in durables is being driven by rising electrification, urban premiumisation, and a growing base of first-time consumers of household appliances.

Within durables, early signs for the ongoing summer season are mixed. The report says that the outlook for electric consumer durables (ECD) and room air conditioners (RACs) remains positive, driven by strong demand for premium products and rising temperatures—especially for brands with an established fan market. However, there are headwinds too. "High raw material costs and limited pricing power may pressure RAC margins," the report cautions. Additionally, while northern markets have picked up with the onset of summer, southern sales were hit by a delay in seasonal temperature rise.

For FMCG players, rural demand remains a critical swing factor. Inflation has eased, and if the monsoon holds up and income support schemes continue, a broader volume recovery could take shape. But the gains are far from guaranteed. As the report points out, “All eyes will be on 4QFY25 earnings season and outlook for FY26. Disappointment will lead to correction amidst uncertainties.”

Indeed, several macro-level risks persist. These include rising geopolitical tensions—particularly after a deadly attack in Jammu & Kashmir triggered cross-border clashes with Pakistan—as well as lingering global uncertainty over U.S. tariffs and trade policy. “U.S. 90-day tariff pause offers temporary relief, but could escalate uncertainty if talks fail,” the report highlights. It adds that a potential U.S.-China trade agreement may even weaken India’s relative advantage in global supply chains under the China+1 strategy.

For now, both sectors are showing short-term momentum, backed by improving domestic consumption indicators and stable input costs. But the road ahead will likely be influenced by how quickly rural recovery firms up and how companies navigate margin pressures and global shocks.