FMCG Q2FY26 Preview: HUL, Nestle, ITC Among Top FMCG Picks as GST Disruptions Hit Q2 Volumes

As we enter into the third quarter of fiscal year 2025-2026, all eyes are on the fast-moving consumer goods (FMCG) sector to declare its performance in Q2FY26. The implementation of the new GST slab rationalisation on September 22 brought a lot of disruption to trade channels. Nuvama Institutional Equities, in its recent report, estimates this could result in a 2-3% adverse impact on volumes and sales for Q2FY26.
However, the short-term issues due to the ongoing GST transition may add some pressure, but the festive season demand could cushion profitability for major players like HUL, Britannia, Nestle, etc.

"Most companies have already passed the initial GST benefit to consumers. However, transitional issues are affecting volumes, margins, and working capital," the report notes.

Rural Recovery and Festive Demand Brighten Outlook For The Year Ahead

The ongoing festive season is expected to support volume growth in staples, beverages, and discretionary categories. Paint demand, temporarily hit due to Q2 heavy rains, is likely to recover in the upcoming quarters.

Sector-specific expectations include:

Maharashtra spirits demand declining double-digit, offset by strong growth in Andhra Pradesh and Karnataka.

ITC cigarette volumes are projected to rise 5-6% YoY, while Godfrey's volumes may grow 20-25% YoY.

Skin care and immunity products from HUL, Dabur, and Emami are poised to benefit from an anticipated harsh winter (Dec'25-Feb'26).
Oil in the sector has improved the margins, supported by falling input costs.

Commodity trends provide a cushion for margins. Palm oil, a key input for packaged foods, soaps, and detergents, has risen 7% YoY and 5% QoQ, which may pressure companies like Bikaji, Britannia, Nestle, and Gopal Snacks if continued into Q3FY26.

Conversely, tea prices are down 15% YoY and up 2% QoQ, supporting margins for Tata Consumer and HUL, while higher coffee prices, which jumped 45% YoY, benefit Tata Consumer plantations and margin profiles of HUL and Nestlé. Copra prices remain high, further influencing select edible oil and snack firms.

Top Picks: Large Caps and Mid-Caps

As per Nuvama's Report, among large-cap FMCG players, Hindustan Unilever (HUL), Nestlé India, ITC, Britannia, and Tata Consumer Products are expected to deliver stable performance, using their brand strength, pricing power, and the vast urban-rural exposure.

Mid-cap names like Dabur, Emami, and Godrej Consumer Products may face mixed trends due to GST-related channel disruptions, but they will benefit from lower raw material costs.

According to Yes Securities' latest coverage of consumer stocks, Dabur, ITC, Tata Consumer, Varun Beverages, and United Spirits are among the top picks, while Gillette India, Nestlé India, and Colgate Palmolive are rated neutral. BRIT, HUVR, JYL, and Westlife are recommended as "adds", suggesting potential upside, whereas UBBL is the only stock on a "sell" rating.