FMCG’s October Jinx: Can Festive Demand and GST Reset Turn The Tide for Indian Investors?
The Nifty FMCG index has fallen every October since 2020, according to data compiled by NDTV Profit from Bloomberg. This trend has raised concerns among investors, particularly in the Indian market. In this article, we will delve into the reasons behind this phenomenon and explore whether festive demand and a GST reset can change the tide for the sector.
Historical Performance of the Nifty FMCG Index
Over the last 10 years, the Nifty FMCG index has managed gains in the month of October only three times. This is a significant trend, as it indicates that the sector has historically underperformed during this period. In 2025 so far, the index has lagged the broader NSE Nifty 50, slipping 3.7% while the benchmark rose 4.1%.
Sharpest Declines in the FMCG Sector
The sharpest declines in the FMCG sector came from Varun Beverages Ltd., which declined 30.5%. This was followed by United Spirits Ltd., Colgate-Palmolive (India) Ltd., and ITC Ltd., which fell 18.5%, 17.1%, and 12.2%, respectively. These declines are a cause for concern, as they indicate a slowdown in demand for consumer goods.
Valuations Remain Stretched
Despite weak returns, valuations in the FMCG sector remain stretched. The FMCG index trades at 31.41 times earnings compared with 21.84 times for the Nifty 50, according to Bloomberg data. Within the basket, only Emami Ltd. and ITC Ltd. trade below the index multiple. This suggests that investors are still optimistic about the sector’s prospects, despite the current slowdown.
Pressure on the Sector
The pressure on the FMCG sector stems from slowing urban demand. Persistently high inflation has led consumers to cut back, shift to smaller packs, or buy cheaper brands. While rural demand has stayed firm, urban households face rising living costs and fewer job opportunities. This has resulted in a decline in sales for many FMCG companies.
GST Reset: A Game-Changer for the Sector?
The GST Council has approved a major reset in indirect taxes that could affect daily-use products. The four-slab system of 5%, 12%, 18%, and 28% is replaced by two rates—5% and 18%. A 40% rate will apply to luxury vehicles, tobacco, and other sin goods. This reset is expected to ease costs in sectors including FMCG, autos, banks, NBFCs, cement, consumer goods, durables, hotels, insurance, logistics, quick commerce, and footwear.
Festive Demand: A Boost for the Sector?
Consumer companies may have seen a shift in growth in the latter half of the second quarter compared with the first half, according to Morgan Stanley. The brokerage flagged that FMCG firms faced a bigger hit than retailers and discretionary players. However, early festive demand could tilt the balance in favor of urban consumption, and the third quarter could mark the strongest festive season in five years.
Insights for Indian Investors
So, what does this mean for Indian investors? The FMCG sector has historically underperformed in October, but festive demand and a GST reset could change the tide. Investors should keep a close eye on the sector’s performance and look for opportunities to invest in companies that are well-positioned to benefit from the GST reset and festive demand.
Some of the key factors to consider when investing in the FMCG sector include the company’s product portfolio, pricing strategy, and distribution network. Investors should also keep an eye on the sector’s valuations and look for opportunities to invest in companies that are trading at reasonable valuations.
Conclusion
In conclusion, the Nifty FMCG index has fallen every October since 2020, but festive demand and a GST reset could change the tide for the sector. Indian investors should keep a close eye on the sector’s performance and look for opportunities to invest in companies that are well-positioned to benefit from the GST reset and festive demand. With the right strategy and a long-term perspective, investors can navigate the market and achieve their investment goals.
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