FMCG Stocks to Buy: ITC, HUL, and United Spirits Surge 18-27% in 3 Months! What’s Driving Nifty FMCG’s Rally?

Shares of FMCG companies like ITC, Hindustan Unilever (HUL), and United Spirits have seen significant gains recently, drawing attention from investors. Over the past three months, these stocks have jumped by 18-27%, driven by positive developments like a better-than-expected monsoon, a revival in rural consumption, and increased interest in premium products.

FMCG Outperforms Nifty 50

In the same period, the Nifty FMCG index has outperformed the broader Nifty 50 index, gaining about 14% compared to Nifty 50’s 8% rise. Stocks such as Balrampur Chini Mills, Colgate-Palmolive, ITC, HUL, and Radico Khaitan have led the way, while Dabur, Tata Consumer, Marico, and Britannia Industries have seen gains of 8-14%.

Festival Season Boost Expected

Analysts are optimistic about the FMCG sector as consumer spending is expected to rise with the upcoming festival season. According to Aamar Deo Singh from Angel One, government efforts to boost rural demand, combined with growth in e-commerce sales, have driven the strong performance of FMCG stocks. As the broader stock market reaches new highs, investors are looking towards more stable sectors like FMCG, which are considered defensive during uncertain times.

Rural Demand and Premium Products Drive Growth

Sanjeev Mohta from B&K Securities agrees, noting that rural demand is improving, which will lead to better volume growth for FMCG companies. He also expects double-digit revenue growth for the sector in the future, thanks to stabilising inflation. Although FMCG stocks used to trade at a premium, they are now looking more reasonably priced compared to other sectors, making them an attractive option for investors.

Premiumisation Continues to Boost Sales

The shift towards premium products is another major factor behind the growth of FMCG companies. As Mohta explains, premiumisation continues to boost growth in highly penetrated categories, while margins are expected to improve due to lower inflation and strategic pricing adjustments.

Government Policies and Monsoon Support FMCG Growth

Akriti Mehrotra from StoxBox points out that positive management comments from FMCG leaders, coupled with government policies supporting rural consumption, have added to the sector’s strong outlook. Above-average monsoon conditions are expected to increase rural incomes, leading to higher spending. Changes in consumer behaviour, such as increased online shopping and higher brand awareness, are also contributing to the sector’s growth.

Investors Shift Towards Defensive Sectors

T Manish from SAMCO Securities believes that the strong monsoon will lead to better rural consumption, which makes up a significant portion of FMCG companies’ revenues. In urban areas, these companies are focusing on premiumisation and innovative business models like influencer marketing and quick commerce, boosting their growth potential. Global market volatility has also made investors more cautious, leading them to invest in defensive sectors like FMCG to protect their portfolios.

Experts Recommend FMCG Stocks for Long-Term Portfolios

For long-term investors, experts recommend keeping FMCG stocks like Dabur, HUL, ITC, and Colgate in their portfolios. Mohta also suggests looking at Tata Consumer and Varun Beverages. SAMCO Securities’ top picks include HUL, United Spirits, ITC, and Jubilant FoodWorks, while Mehrotra favours HUL, ITC, and Varun Beverages for their strong growth prospects and strategic moves. She notes that Varun Beverages has expanded its product range and operations, which positions it well for long-term growth, while ITC’s diversification into chocolates, dairy, and other FMCG products adds to its appeal.