The FMCG revival is real — and institutional money is returning
Roy’s bullishness on the broader FMCG sector rests on three pillars. GST rate cuts are driving grammage increases and improving affordability. Rural demand continues to hold up well. And urban consumption is recovering as inflation cools. Crucially, he notes that the sharp selloff in IT stocks — a much larger index weight — is redirecting both DII and FII flows toward stable consumer names, providing an unexpected tailwind.
His top picks reflect this view: Nestle, Britannia, Marico, and Tata Consumer. These food-heavy companies, he argues, are best positioned to benefit from operating leverage and improving consumer sentiment in the near term.
ITC: The worst tax shock is priced in
The cigarette giant has been the most debated stock in the FMCG universe since the government delivered what Roy describes as a “harsh tax hike” after seven years of relatively rational policy on the sin sector. The stock tumbled from around ₹405 to nearly ₹315 in the immediate aftermath. Roy’s message to investors: the panic was overdone.
“Worst is behind,” he said flatly, though he cautions that the full recovery will take time. His reasoning is methodical. ITC will not absorb the entire tax hit at once. The company’s large portfolio means price hikes will be phased — and its pricing power in a habit-forming, high-entry-barrier sector is essentially absolute. Volume decline, while inevitable, is unlikely to be as severe as feared. Roy is currently modeling a 3–4% volume dip in FY27, far below the high single-digit or double-digit declines that spooked markets initially.
There is also a meaningful offset on costs. Tobacco raw material, which was inflationary through the past year, has corrected and is expected to be a tailwind in FY27. This should support margin recovery in the second half of the financial year, even if the first quarter sees some pressure — a mathematical result of tax outflows kicking in before price hikes are fully passed through.
The illicit trade question — and why it may be temporary
Roy addressed the elephant in the room: whether a sharp legal price increase hands market share to illicit cigarettes. His answer is yes in the short term, but he does not see it as a lasting structural threat. The government’s own track record speaks for itself — seven years of measured policy delivered strong volume growth for legal players and healthy tax collections. A repeat of aggressive taxation in the next one to two years seems unlikely given that context, and given that the recent hike was partly a compensatory move following GST cuts elsewhere.
ITC’s FMCG business is quietly delivering
One part of the ITC story that Roy believes the market is underweighting is the non-cigarette FMCG business. Foods — noodles, biscuits, snacks — are benefiting directly from GST reductions. The company posted 42% profit growth in its FMCG division in Q3, driven by operating leverage. Roy expects double-digit sales growth in FMCG to continue into Q4. The ongoing paper merger adds another layer of value to what he describes as a high-dividend, multi-business conglomerate.
On valuation, Roy pushes back against a simplistic reading of ITC’s price-to-earnings ratio relative to its five-year average. “You cannot look at just the three-year, five-year average,” he said, pointing out that stock performance involves far more moving parts — sector rotation, portfolio mix, and forward earnings trajectory. He sees ITC returning to above ₹400 on a one-to-two year view. The math on FY28 earnings, once cigarette margins normalize and FMCG scales further, makes the current level look undemanding.
HUL’s ₹2,000 crore bet on premium beauty
Away from cigarettes, Roy was equally positive on Hindustan Unilever’s decision to invest ₹2,000 crore in premium beauty and personal care. He sees the move as a direct and necessary response to the growing competitive threat from D2C brands and the premiumization wave sweeping Indian consumption. The Minimalist acquisition, he said, is already scaling aggressively through kirana distribution and heavy advertising — a template HUL is likely to replicate with further bolt-on acquisitions in the space over the next one to two years.
HUL‘s Q3 numbers, which disappointed some investors, were actually ahead of Roy’s own estimates. With 4% volume growth and 5.7% sales growth at a multi-quarter high, and management guiding for further improvement through FY27, Roy remains constructive on the stock.
The bottom line
For investors navigating the FMCG space right now, Roy’s framework is clear: lean into food companies for the next six months, treat ITC as a one-to-two year recovery story, and watch HUL’s premium beauty pivot as a structural re-rating catalyst. The sector tide is turning — the question is simply how patient you are willing to be.