Investors slow to lap up FMCG majors' stocks wanes

Indian fast-moving consumer goods  as market capitalisation shrinks and investor interest shifts to emerging growth sectors.

Companies in the fast-moving consumer goods (FMCG) sector continue to lose favour with equity investors.

The price-to-earnings (P/E) ratio of the companies that are part of the National Stock Exchange FMCG index has now declined to its lowest level in six years.

The index is now trading at 38.8 times its trailing earnings, down sharply from 43.9 at the end of March last year.

This is the lowest valuation ratio for the sector since the January-March 2020 quarter, when it had declined to 37.3 times due to the lockdown owing to the pandemic.

FMCG vs. Sensex Performance

In comparison, Sensex valuation has been largely unchanged in the past year.

The benchmark index is now trading at a trailing P/E of 21.55 times, down marginally from 21.58 at the end of March 2025.

For comparison, the Sensex trailing earnings multiple had declined to 19.6 times at the end of March 2020.

As a result, there has been a sharp decline in the valuation premium of the FMCG stocks over the benchmark index.

The FMCG stocks are currently at an 80 per cent premium to the Sensex’s valuation, down from a premium of 103.4 per cent at the end of March last year.

The current valuation premium of the FMCG stocks is, however, in line with the 10-year average premium of around 80 per cent.

The analysis is based a common sample of 13 leading FMCG companies that are part of the NSE FMCG index.

The two companies excluded from the analysis are Varun Beverages and Patanjali Foods.

A sharper decline in FMCG companies’ valuation ratio is due to a bigger decline in their market capitalisation and relatively fast earnings growth last year.

The combined market capitalisation of FMCG companies in the sample is down 7.5 per cent since the end of March last year as against a 7.1 per cent decline in the Sensex during the period.

In comparison, their combined net profits adjusted for exceptional gains and losses (on a trailing 12-month basis) are up 5.8 during the period while the benchmark index underlying earnings per share (EPS) is up 1.4 per cent in the last 12 months.

Market Capitalisation and Investor Sentiment

Their combined market capitalisation declined to £18.95 trillion on Friday from £20.49 trillion at the end of March 2025 and a record high of £25.56 trillion at the end of September 2024.

With this, the sector has lost nearly 26 per cent of market capitalisation from its all-time high compared to around a 16 per cent decline in the Sensex from its peak of 85,220.6 at the end of December last year.

In other words, the broader market recovered in the second half of calendar year 2025 after a selloff in the last quarter of 2024 and early 2025 but the share prices of FMCG companies continue to struggle and many individual stocks hit new lows in recent weeks.

Analysts attribute this to general weakness in consumer demand and investors’ poor expectations from the sector.

“Most companies in the sector have failed to provide earnings momentum at a time when the broader earnings growth has been weak.

"That’s why I now call them ‘slow-moving consumer growth’ rather than FMCG,” said G Chokkalingam, chief executive officer and founder, Equinomics Research & Advisory.

According to Chokkalingam, FMCG companies not only suffer from a weakness in overall consumer demand but also a rise in competition from regional brands and private labels.

This has forced established FMCG firms to lose market share and take a hit on their margins.

Investors, in turn, have moved to sectors with newer growth stories such as renewal energy, electric vehicles (EVs), defence, and even general manufacturing.

Not surprisingly, the FMCG sector’s trailing P/E is now lower than areas such as consumer durables, defence capital goods, industrial companies, health care, realty, and cement.

However, FMCG companies’ valuations are still ahead of sectors such as automobiles, power & gas utilities, information-technology services, mining & metals, banking, finance & insurance (BFSI), and oil & gas.