Ambit Capital Turns Positive on FMCG Stocks Amid Soft Earnings Cycle

Consumer staples could see a stronger June quarter as pricing power returns, volume growth improves and defensive sectors draw fresh institutional interest amid a softer earnings cycle. Ambit Capital turns tactically positive on FMCG stocks, arguing that the June quarter has historically been the sector’s strongest stretch and that slowing earnings momentum elsewhere could push money back into defensive names. Nifty earnings growth is cooling after several quarters of strong expansion, foreign institutional investors continue to pull money out of Indian equities, and market valuations remain elevated. Against that backdrop, Ambit believes staples are positioned to outperform on a relative basis despite margin pressure. The brokerage’s preferred names include ITC , Godrej Consumer Products , Britannia Industries and Marico . It also retains an ‘Overweight’ stance on the sector in its model portfolio. Ambit’s core argument rests on seasonality. Since 2000, FMCG stocks deliver average returns of about 5% in the second quarter of the calendar year, with median returns at roughly 7.1%. During the same period, the Nifty FMCG index outperforms the broader Nifty around 60% of the time in the April-to-June quarter. Between 2011 and 2025, the sector posts positive returns in 87% of second quarters, with median returns of 8.9%, according to the report. Ambit says the case for FMCG strengthens further because the market is entering what it describes as a “slowdown environment” in its growth-rate cycle framework. Historically, quality-focused portfolios tend to outperform in such periods, and FMCG accounts for nearly 30% weight in the Nifty 200 Quality 30 index. Over the previous phases of rising market concentration between 2010-13 and 2017-20, FMCG ranks among the top three performing sectors relative to the NSE500 index, the brokerage notes. The brokerage expects staples companies to report better revenue momentum over the next few quarters as price hikes begin flowing through and rural demand steadies. According to Ambit, FMCG sales growth could rise to 9-10% from 6-7% earlier, helped by price increases of 3-12% across categories to offset inflation in key raw materials. The report also points to improving volume growth after disruptions linked to GST-led channel transitions ease. For several quarters, staples companies rely largely on volume recovery while pricing stays muted. That equation is now changing as companies push through selective hikes. Still, input cost pressure remains visible across edible oils, packaging and select agri commodities. The report warns that margins could remain under strain even as topline growth improves. Ambit expects Nifty Q4FY26 profit after tax growth to remain largely flat year-on-year, a moderation from the pace seen over previous quarters. Sales growth is also expected to normalise, although EBITDA growth could remain relatively stable. BFSI companies are expected to remain the primary support for index earnings. Ambit estimates Nifty BFSI PAT growth at 9% year-on-year for the March quarter, while Nifty ex-BFSI earnings could decline 2%. Reported earnings so far marginally beat expectations. Aggregate Nifty PAT growth exceeds estimates by roughly 4%, according to the report. Among FMCG companies, Nestle India reports sales rising to Rs 6,700 crore from Rs 5,500 crore, while PAT increases to Rs 1,100 crore from Rs 900 crore. Hindustan Unilever posts PAT growth to Rs 3,000 crore from Rs 2,500 crore. Meanwhile, IT and pharma stocks outperform last week, while banks lag sharply. Smallcaps continue to beat largecaps on a year-to-date basis, although more than half of NSE200 stocks close lower during the week ended April 30. Ambit points to stretched valuations as another reason investors may rotate toward quality and defensive sectors. Its preferred valuation gauge, the Buffett Indicator or market-cap-to-GDP ratio, currently stands at around 125%, a 27% premium to the 10-year average of 98%. The brokerage says Indian equities remain expensive despite recent corrections in parts of the market. Ambit also says industrial production growth slows to 4.2% in March 2026 from 5.1% in February, marking the weakest reading in five months. Several consumer-linked sectors outside automobiles either contract or show limited growth. The report links some of the weakness to disruptions caused by the West Asia conflict. Imports and exports are both hit, crude prices remain elevated and the rupee weakens sharply against the dollar. “Growth holds up in most urban indicators, but there appears a lack of meaningful acceleration,” the brokerage says in its activity tracker. It adds that prolonged geopolitical tensions and rising inflation could hurt consumption trends. FIIs remain net sellers in April 2026 with outflows of $4.4 billion, although the intensity of selling moderates from March levels. Domestic institutional investors remain net buyers for the 33rd straight month with inflows of $5.1 billion. Britannia Industries is among the companies that record the sharpest increase in delivery volumes during the week, according to Ambit’s analysis of NSE 200 trading patterns. Short covering also becomes prominent in IT and auto counters, signalling unwinding of bearish positions after recent corrections. Beyond the FMCG call, Ambit argues that factor investing strategies linked to quality and low volatility tend to outperform during economic slowdowns, while pure value strategies struggle. The brokerage says slowdown phases historically see low-volatility strategies generate nearly 12% alpha while quality strategies deliver around 5%, according to the report. Ambit’s model portfolio reflects that approach. Alongside financials and telecom, the brokerage retains exposure to FMCG names including Godrej Consumer Products and Marico, while ITC remains unrated and Britannia carries a sell recommendation on valuation grounds. With earnings growth cooling, valuations remaining elevated and consumption indicators uneven, defensive sectors are moving back into focus for institutional investors.