FMCG Q3FY24 outlook: Experts weigh in on likely outperformers amid challenges

However, if one moves to the rural-focused companies or those in the staples,  there have been many underperformers. Hindustan Unilever Ltd (HUL) is down 1.5% in the last 12 months, Colgate Palmolive India is up just 2%.

Analysts expect a gradual recovery owing to the festive season with mid-single-digit volume growth for the entire fast-moving consumer goods (FMCG) pack. The focus will be on whether urban and discretionary consumption continues to thrive, and rural continues to lag, and the problems in the mass market staples business.

However, earnings before interest, tax, depreciation, and amortisation is expected to be better.

Analysts will keep an eye on a couple of other things. A potential price decrease with commodity prices cooling off could weigh on the revenue of all companies. Street will also closely watch if there is expansion in the gross margins, and regional competition trends which may have results in enhanced ad spends.

Titan has reported a 23% jump in its jewellery business. This means the discretionary demand is doing a lot better. Avenue Supermarts saw a 17% jump in its standalone revenue but a lot lower than its four year average. Again, mass consumption appears to be under pressure.

One will have to watch out for a couple of these likely outperformers. For instance, United Breweries management told CNBC-TV18 it expects a margin expansion and volume uptick. Honasa Consumer also talked of a potential margin uptick. The outlook is also good for Trent that has had a strong run.

Management commentary on demand revival, regional competition, mergers and acquisitions (M&A) activity and margin expansion will be closely watched.

Valuations have never been cheap in the FMCG space, but now it looks relatively better given the run-up that has been seen in the other spaces.

Industry experts have been concerned about the upcoming year, foreseeing a slowdown rather than an uptick in the market. Vishal Gutka, AVP-Consumer & Media at Phillip Capital, highlighted the prevailing challenges in the industry, emphasising the ongoing stress in rural demand and the absence of meaningful signs of recovery.

Gutka explained that the entire ecosystem, spanning from consumers to distributors, is grappling with various issues, causing a sense of discomfort. He noted that regional brands seem to be faring better than their national counterparts, attributing their success to their ability to meet customer needs and cater to the demands of local mom-and-pop stores. In the current market scenario, customers are seeking lower prices, while retailers are in need of higher margins and extended credit periods. Regional brands, according to Gutka, are better positioned to fulfill these requirements.

The performance of specific FMCG companies has been highlighted in the analysis. Nestle and Tata Consumers continue to outperform, while Jyothy Labs has been commended for its excellent execution of distribution ramp-up. On the jewellery side, Titan is anticipated to report strong numbers.

Gutka suggested top picks for the medium-term perspective, with GCPL standing out in the midcap space. He also expressed continued favor towards Nestle and ITC in the large-cap space.

Manoj Menon, Head-Research and FMCG Analyst at ICICI Securities, is neutral on the FMCG sector overall. Menon prefers discretionary companies, citing few exceptions like GCPL, Tata Consumer, Jyothy Labs, and Nestle, which he believes are making significant efforts to outperform the market.

In terms of the paints space, experts believe that the sector might experience time corrections due to increased noise in the market.