Why the FMCG Sector Has Stalled—And What Could Spark the Next Rally

🛒 Why FMCG stocks have underperformed in recent years—and what key trends could trigger a comeback in 2025 and beyond.

Over the past few years, sectors like technology, banking, and energy have dominated investor attention, while the Fast-Moving Consumer Goods (FMCG) sector has quietly lagged behind. Once considered a defensive stronghold for long-term investors, FMCG stocks have largely underperformed since 2021.

So, what went wrong? More importantly, what could bring this sector back into favour?

In this post, we’ll explore the macroeconomic and consumer-driven reasons for the FMCG slump, current challenges in the industry, and why some analysts believe a turnaround could be closer than it seems.

⚖️ The Impact of High Interest Rates on FMCG

The FMCG sector thrives in stable, low-interest environments. Companies like Nestle, Unilever, Hindustan Unilever, and Procter & Gamble rely on predictable consumer demand and low financing costs to operate efficiently and maintain steady margins.

But since 2022, global interest rates have surged as central banks tackled inflation. For FMCG players, this had multiple knock-on effects:

Higher borrowing costs: Companies with debt-financed expansion or supply chains saw their interest expenses rise.

Shifts in investor preference: High interest rates made risk-free assets like bonds more attractive, diverting funds away from "safe" equity plays like FMCG.

Consumer behaviour changes: With inflation pinching household budgets, consumers started trading down to generic or private-label alternatives.

In short, the sector was squeezed from both ends—higher costs and weaker demand.

📦 Inflation and Margin Pressure

One of the biggest challenges FMCG companies faced between 2022 and 2024 was input cost inflation. Essential commodities like palm oil, wheat, sugar, and packaging materials became significantly more expensive.

FMCG firms passed some of these costs onto consumers, but not all. In highly competitive categories, price hikes led to:

• Lower volume growth
• Consumer resistance
• Margin compression

Take India as an example: rural consumption, traditionally a backbone of FMCG growth, weakened as inflation eroded disposable income. Even well-loved brands saw volumes dip despite clever pricing strategies.

🧍 Changing Consumer Preferences

The pandemic, followed by economic volatility, reshaped how people shop and what they value.

Health & wellness: Demand has shifted toward low-sugar, organic, and immunity-boosting products.

Sustainability: More consumers now consider packaging waste and carbon footprints before purchasing.

Digital-first buying: E-commerce channels have gained ground, forcing traditional FMCG brands to invest heavily in digital transformation.

While this evolution opens new opportunities, it also increases operating costs and requires faster innovation cycles—something large FMCG firms have historically struggled with.

📉 Valuation and Investor Sentiment

Before 2021, many FMCG stocks traded at premium valuations due to their perceived safety, strong brands, and predictable cash flows. But with the macro environment shifting, the premium disappeared.

Today, many FMCG companies trade at a discount compared to their historical averages.

Investors are asking:

Where’s the growth?

What’s the upside when interest rates are still relatively high?

Are we overpaying for predictability?

This has left FMCG out of the recent equity market rallies that favoured high-growth or cyclical sectors.

🔮 What Could Drive a Turnaround?

Despite current headwinds, FMCG isn’t down for good. Here are some catalysts that could reignite interest in the sector:

1. Interest Rate Cuts

If central banks begin easing monetary policy in late 2025 or early 2026, the lower-rate environment would support:

Cheaper financing

Higher consumer spending

Renewed interest in dividend-paying defensive stocks

2. Input Cost Stabilization

Commodities like palm oil and crude are showing early signs of stabilization. A sustained easing of input costs could restore FMCG profit margins.

3. Emerging Market Recovery

Markets like India, Indonesia, and Nigeria are expected to see a rural demand revival due to:

Government stimulus

Improved monsoons or agricultural output

Lower inflation

This would benefit mass-market FMCG brands disproportionately.

4. Product Innovation

Premiumization (offering higher-value versions of core products), healthier alternatives, and localized flavours are some ways FMCG companies are attempting to drive growth.

Expect more investment in:

Plant-based foods

Personal care innovation

Functional beverages

Digitally native product lines

5. Supply Chain Digitization

FMCG players are increasingly using AI, blockchain, and data analytics to streamline logistics, forecast demand more accurately, and reduce wastage—all of which could improve margins and investor sentiment.

📊 Should You Invest in FMCG Stocks Right Now?

Here are some factors to consider:

✅ Pros:-

• Stability in earnings
• Strong brand loyalty and moats
• Attractive dividends
• Potential for recovery as macro conditions improve

⚠️ Cons:-

• Slower capital appreciation in the short term
• Vulnerability to margin pressures
• Higher competition from private labels and local brands

If you're a long-term investor seeking lower volatility and regular income, FMCG could be worth a look—especially if valuations remain compressed.

✍️ Final Thoughts

The FMCG sector may have underwhelmed in recent years, but history shows that it tends to shine in uncertain times. As interest rates eventually fall and consumer sentiment stabilizes, FMCG could regain its place as a reliable and profitable part of your portfolio.

Smart investors are keeping a close eye. Maybe you should too.