Inflation puts FMCG firms' margins at risk; analysts back Marico, Nestle

Sugar prices have surged around 35–40 per cent in recent months, adding to the input cost burden for FMCG companies. Experts said that the sharp rise in sugar prices has acted as an additional cost burden amid a spike in input cost inflation due to West Asia tensions. Analysts said higher sugar prices and input cost inflation could weigh on FMCG stocks in the near term, with the impact varying across companies depending on their product mix and pricing power.

Notably, sugar accounts for 10–16 per cent of input costs in segments such as biscuits, confectionery, bakery products and carbonated beverages. Britannia may face maximum margin pressure Companies heavily reliant on sweet-snacking portfolios like Britannia Industries may face maximum margin pressure, said Avinash Gorakshakar, founder and head of research, Avinash Mentor Research Services. “When domestic sugar prices jump sharply due to tight carryover supplies or festive-season inventory demands, companies with heavy exposure face immediate gross margin compression,” he said.

Companies with diversified portfolios, such as Nestle India and Varun Beverages, are typically better insulated, he added. Britannia Industries shares have underperformed over different time frames, declining 20 per cent so far in 2026 and 18 per cent over the past year. The stock has gained 5 per cent over three years.

On the other hand, diversified players have performed comparatively better, but failed to generate handsome returns. Nestle India shares have risen just 3 per cent Y-T-D and 13 per cent over the past year, while Varun Beverages has remained largely flat over the past year. Despite the cost pressures, analysts do not expect higher sugar prices to trigger a broad-based slowdown in demand ahead of the festive season.

They noted that companies are adopting measured pricing strategies to protect volumes, even as margins remain under pressure. CHECK Stock Market LIVE Updates Sugar inflation at 18-20% Equirus Securities’ October commodity assessment estimates sugar inflation at 18-20 per cent Y-o-Y, adding to cost pressures across biscuits, confectionery, malted beverages and soft drinks. However, sugar is only one component of the raw material basket.

The overall impact will depend on companies’ exposure to other inputs, including edible oils, dairy, coffee, cocoa and packaging materials, as well as their ability to pass on higher costs. Channel feedback suggests companies are prioritising festive-season volume growth over immediately passing on the full increase in input costs. Sugar prices may hit FMCG firms' margins “While this approach should help protect demand, it could keep near-term margins under pressure.

Festive consumption is likely to provide support, but the recovery will be selective,” Ronak Shah, consumer-sector analyst at Equirus Securities, said. Shah said that he prefers Marico within the FMCG space, citing its reducing commodity exposure and healthy volume growth in recent quarters. Sunny Agrawal favours Nestle India Sunny Agrawal, head of fundamental research at SBI Securities, said that long-term investors should look at Nestle India, given its strong position in the impulse gifting and confectionery segments, which could see demand traction during the upcoming festive season.

Sandeep Abhange, research analyst – consumer and midcaps at LKP Securities, expects strong volume growth in Q2FY27, though sugar prices and raw material inflation remain concerns for FMCG companies. Underlying demand has improved, with value growth reaching a six-quarter high, led by rural markets, he said. However, the key test for FMCG companies will be margins, as sugar, palm oil and packaging costs remain elevated.

“We believe larger FMCG companies have already taken mid to high-single-digit price hikes, which should cushion margins without denting festive volumes,” he said. Disclaimer: Views and outlook in this report belong to the brokerages and analysts cited. They do not reflect the views of Business Standard. Readers are advised to exercise discretion.