HSBC said the Indian FMCG sector faces growth risks as GST cut benefits fade. Commodity inflation and El Niño remain key concerns for the industry. The brokerage noted, "we expect FMCG sector growth to normalise as benefits from GST cuts, if any, also fade." Many stocks fell up to 19%.

Over a year after the cuts in India's Goods and Services taxes (GST) took effect, HSBC noted that the India FMCG sector along with key staple stocks are down up to 19%, despite growth picking up after the September quarter in the last fiscal year.

According to the brokerage, the growth improvement was not compelling enough to justify the sector's premium valuations, and investors probably preferred other higher-growth sectors. Additionally, commodity prices spiked overall especially in crude and palm oil also remained one of the key drags for the sector.

While HSBC underlined that it does not think that El Niño is a driver as the intensity of monsoon shortfall has only been known since the end of September 2026, it forecasted el nino's impact to remain a key risk for the sector along with sustained commodity inflation.

Therefore the brokerage said, "we expect FMCG sector growth to normallise (10% for H2FY27e vs 14% for H1FY27e for our staples coverage, ex ITC) as benefits from GST cuts, if any, also fade. Sustained commodity inflation along with the impact of El Niño remain risks."

Accordingly, HSBC has revised estimates and ratings for some of the major FMCG players, including Mama Earth-parent Honsana Consumer Ltd. The company has bagged a 'buy' upgrade from the brokerage backed by a revised strategy that may scale brands Mamaearth and The Derma Co.

Further, EPS estimates for the company have been increased by 8-13% and minor tweaks were done to Tata Consumer estimates, while for others HSBC's estimates remain unchanged.

On the flipside, the brokerage assessed that a pullback in commodity prices could mean big gains for players like Britannia and GCPL, without structurally altering growth or margin profiles.

"If commodity prices cool off, the FMCG space could rally, especially beaten down and commodity-impacted names like GCPL and Britannia, although we do not believe that would structurally alter the growth or margin profiles," HSBC outlined.

At present, Marico Ltd., Tata Consumer Products Ltd., Honasa Consumer Ltd., Hindustan Unilever Ltd., Britannia Ltd., Nestle India Ltd., Dabur Ltd., ITC Ltd., and Colgate India Ltd. remain the top picks for the brokerage, in the same preferential order.