Muted Q4 For FMCG Sector As Urban Demand Falters, Rural Markets Gain Ground

The report noted a steady recovery in rural demand, supported by moderating inflation, higher public expenditure, and enhanced minimum support prices for key agricultural commodities

Urban areas, which traditionally account for 50-60 per cent of FMCG sales, remained under pressure during the quarter

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India’s fast-moving consumer goods (FMCG) sector saw a tepid performance in the fourth quarter of FY25, with urban markets continuing to lag, according to a report by Axis Securities. The report attributes the subdued results to persistent demand softness, mounting competition, and overarching economic challenges that dampened growth across key categories.

“FMCG companies have reported muted performance due to weakness in the urban market, owing to increased competitive intensity and subdued demand environment,” the report stated, underlining the struggles of companies operating in a highly contested and price-sensitive landscape.

Urban areas, which traditionally account for 50-60 per cent of FMCG sales, remained under pressure during the quarter. Firms noted that a combination of factors, including restrained discretionary spending, stagnant wage growth, elevated interest rates, and rising living costs such as rentals and EMIs, continued to suppress urban consumption.

Quick-Commerce Platforms

Compounding the issue is the increasing market share of direct-to-consumer (D2C) brands and the growing reach of quick-commerce (Q-commerce) platforms, which have disrupted traditional retail models and siphoned demand away from established players.

In contrast, rural markets offered a ray of hope for the sector. The report noted a steady recovery in rural demand, supported by moderating inflation, higher public expenditure, and enhanced minimum support prices for key agricultural commodities. As a result, demand from rural regions has started to outpace that of urban areas, reflecting greater resilience amid macroeconomic shifts.

Despite current challenges, FMCG firms are cautiously optimistic about a gradual recovery. Management teams across the sector anticipate volume growth to begin picking up over the next one to two quarters, with more substantial improvements likely in the second half of FY26. This outlook is premised on expectations of declining inflation, potential rate cuts, a favourable monsoon, and strong agricultural output.

On the financial front, topline growth remained subdued for most staples, with volume growth restricted to low single digits. Gross margins were squeezed by higher costs of raw materials, such as palm oil and other agri-commodities, resulting in limited margin expansion. The report noted that with input costs still elevated and consumption yet to rebound meaningfully, FMCG companies are likely to maintain a cautious stance, keeping EBITDA margin expectations conservative in the near term.