If you look at the returns on the FMCG index over the last 5 years, it is still impressive at around 75%. The FMCG index is down about -15.4% from the peaks touched in September 2024. On September 27, 2024, the FMCG index peaked at 65,845 levels. Between Sep-24 and Feb-25, the FMCG index corrected -23.1% to 50,689 levels by late February 2025. Since then, the FMCG index has recovered from the lows of February 2025, but it is still way below the peak levels achieved in September 2024. What has gone wrong with FMCG stocks? 

If one looks at the growth drivers for FMCG top line in the last few quarters, it has been coming entirely from price hikes and not from volume growth. In fact, volume growth is either flat or negative for most consumer staples. However, as input costs increased in the last 1 year, the FMCG companies managed to pass on higher prices to the customers. This resulted in a situation where prices for many staples went up 50%-60% in a single year. This created a demand stagnation for most consumer staples products. Even in the latest quarter, the volume growth for most products is either flat or negative. This has been a major factor in depressing sales volumes for FMCG products. 

Despite the presence of big global brands in the FMCG space, the informal sector still holds about 25% to 30% market share of the FMCG sector. The difference is that the informal sector is getting smarter. With a larger number of informal FMCG names, the focus has shifted to costs and miniaturization. Most FMCG products are in standard sizes, which may not be affordable in rural and semi-urban areas. This is where the informal sector has gained an entry. Also, the informal sector has started to focus on very niche and specialized segments of the market, where competition is limited. The informal sector is quietly making a dent on FMCG biggies. 

Most FMCG players admit that their biggest show spoiler in the last couple of years has been the rapid growth of the quick commerce sector. Most of the FMCG names are trying to build their own digital market place, but that has had limited appeal. Buyers in India still prefer to go to an agnostic market place like Instamart or Blinkit to get a much wider choice and better discounts. These platforms sell all brands and even offer attractive discounts.  This has also soured the relationship between these FMCG companies and the traditional distribution channel. Clearly, the Indian FMCG sector has several pressing challenges to address at this juncture!