Indian FMCG companies are set for a mixed Q2FY27 earnings season, with a softer year-ago base and selective price hikes expected to support topline growth. However, persistent raw-material inflation is likely to keep margins under pressure, making earnings delivery crucial for stock valuations.
Domestic brokerage house HDFC Securities, in its Q2FY27 earnings preview for the FMCG sector, maintained an underweight stance, saying the sector continues to face weak earnings visibility and a waning competitive moat. The brokerage expects revenue growth to improve in the September quarter but remains selective in its stock preferences.
“FMCG sector valuations continue to de-rate amid weak earnings visibility and a waning moat. We maintain our underweight stance and see performance improvement as critical for valuation. Q2 topline is likely to be stronger on a low base and incremental price hikes," said HDFC Securities.
The brokerage expects revenue growth across its coverage to improve in Q2FY27, helped by a softer base and price increases that partially offset inflation. It forecasts around 12% YoY revenue growth across the companies covered, with most expected to report double-digit topline growth.
However, the improvement in revenue is unlikely to translate uniformly into earnings. Persistent raw-material inflation is expected to weigh on margins. ITC, Bikaji Foods and Gopal Snacks are expected to report YoY earnings declines, while HUL, Dabur and Emami could deliver single-digit earnings growth.