This FMCG analyst warns of sluggish volume growth and limited margin expansion for the sector

Amnish Aggarwal, Head of Research at brokerage firm Prabhudas Lilladher says the relative underperformance of the fast-moving consumer goods (FMCG) index in the current financial year is due to uncertainty over the volume growth and margin expansion in the sector.

The Nifty FMCG index returned 18% this year versus Nifty50 gains of nearly 30%.

Aggarwal said while the volume growth for most companies is not picking up on a boarder basis, intense competition from regional and smaller players with lower pricing is also likely to cap margin expansion.

Speaking to CNBC-TV18, Aggarwal pointed out that some companies had revised prices in line with the correction in raw material prices. There appears no reason for a price increase in the near term.

Aggarwal also noted that without a clear insight into the monsoon patterns or a notable uptick in rural demand, he does not anticipate any substantial acceleration in topline growth for FMCG companies.

He also listed his preferred picks in other sectors.

Avenue Supermarts, is one such stock, which has consolidated significantly over the past eighteen months.

He believes Avenue presents a promising long-term investment opportunity, with superior growth potential compared to most other consumer names.

The consolidation has helped in making the stock's price-to-earnings multiples more reasonable in recent years, he noted.

However, staples still lack bullish sentiment due to limited bottom-line growth projections.

On the discretionary side, Aggarwal is positive on Titan, highlighting its recent performance.

While the Titan stock may continue to be range-bound near-term, he remains optimistic about its long-term prospects.