CLSA Flags Valuation Concerns for Indian FMCG Stocks Amid Slowing Growth
Global brokerage CLSA has issued a cautionary note on Indian fast-moving consumer goods (FMCG) stocks, pointing to stretched valuations that are becoming increasingly disconnected from underlying earnings growth. The firm has placed 10 out of 15 FMCG stocks under its coverage on either ‘sell’ or ‘underperform’ ratings, highlighting a growing concern about the sector’s risk-reward outlook.
According to CLSA, most large- and mid-cap FMCG companies are trading at significant valuation premiums—up to 80% higher—when compared to their global counterparts. Despite this, India’s FMCG sector is witnessing earnings growth that is trailing the broader market, raising red flags around sustainability and investor expectations.
Key players in the sector have delivered mixed results in recent quarters, with volume growth subdued by persistent inflationary pressures, weak rural demand recovery, and intensifying competition from regional and unorganised players. CLSA estimates FY25 earnings per share (EPS) growth across FMCG names to range between 8–25%, trailing the broader Nifty EPS growth forecast of 16% and the consumer discretionary sector forecast of 30%.
“The current market prices fully reflect the expected margin recovery and rural resurgence, but with no meaningful volume uptick so far, the upside appears limited,” CLSA noted in its investor outlook. The brokerage also cited rising risks to margins in FY26 as raw material costs begin to climb, especially crude-linked inputs.
Among individual calls, CLSA downgraded Godrej Consumer Products to ‘sell’ citing weak international performance, and Marico to ‘underperform’ amid slower core category growth. However, the firm maintained its ‘buy’ rating on Varun Beverages, applauding its strong volume-led growth prospects, and upgraded ITC to ‘buy’ on attractive valuations and potential rerating triggers.
For industry stakeholders, the CLSA note serves as a critical reminder to reassess growth assumptions and margin expectations, especially in the face of shifting market dynamics and consumer demand headwinds. As FMCG companies navigate pricing strategies, rural recovery, and competitive pressures, maintaining profitability while justifying high valuations will be a delicate balancing act in the year ahead.