GCPL, HUL, Marico: GST reforms set to lift consumption demand; FMCG stock picks

Prime Minister Narendra Modi’s Independence Day announcements on the rationalization of GST rates and the simplification of the rate structure are set to accelerate the consumption revival, MOFSL said in a strategy note. While the details of the GST restructuring have not been disclosed yet, MOFSL said consumer staples, through better demand and lower raw material costs, should benefit from any such announcement. 

PM Modi had on Independence Day said the government will restructure GST rates to reduce the tax burden. This is in addition to the income tax relief provided under the new tax regime in the last Union Budget 2025-26, in potential savings of Rs 1 lakh crore for taxpayers. 

These moves show that the government has strengthened its focus on consumption revival, MOFSL said. 

"A consumption revival will also be positive for discretionary companies, but since FMCG companies have been impacted the most and the ask rate has gone down significantly, the sensitivity looks superior for FMCG companies. We continue to like HUL, GCPL, and Marico in our staple universe," it said.

MOFSL noted that consumption was impacted by high inflation, rising interest rates, and a lack of government initiatives in the last three years. For the June quarter though, consumer staple companies came out with relatively better revenue print and commentary. Rural markets’ performance has been an outlier for the last 12 months after witnessing a tepid performance during 2022-2023, MOFSL said.

"In the urban markets, consumption has been weak for the last 12 months, though we believe easing inflation, falling interest rates and other supportive measures (such as income tax relief) should revive urban consumption in the next 12 months. Some consumer companies have mentioned that green shoots are visible in urban demand, which we believe would result in a positive outlook for 2HFY26," MOFSL said.

Considering overall positive macro drivers for consumption, MOFSL said FMCG companies are also gearing up to address this opportunity, saying there is a clear impetus on relevant new product launches by most companies that will largely address the value segment/mass consumers. 

"Most companies’ revenue growth in the last two years was much lower than their own historical averages, impacted by price cuts, weak rural sentiment, and a faster change in consumer preferences in urban areas in terms of brands (D2C, etc.), distribution channels (Ecomm, QC), etc. We believe growth initiatives by companies, along with a macro revival, will revive the growth momentum, and most companies will deliver volume-driven revenue growth," it said. 

MOFSL said prices of key commodities have been easing with some volatility. The gross margin (GM) impact will be in the base from Q3FY26 and there is a possibility of GM expansion if commodity prices continue to decline, it said. 

The overall earnings print for FMCG companies is expected to turn superior, the domestic brokerage said.