According to reports from The Economic Times, ITC's cigarette business faces significant pressure from the sharpest cigarette tax hike India has seen in years, announced in the Union Budget and effective from February 1. January saw unusually strong volumes as trade channels front-loaded purchases ahead of the hike, while March saw a sharp reversal as pre-bought inventory worked through the system. Q4 cigarette volumes are expected to be roughly flat, with negative net pricing because the tax cost has not yet been fully passed through to consumers. The bigger worry is illegal cigarettes gaining market share when legal cigarette prices spike sharply, making smuggled products far more attractive to price-sensitive buyers. Roy expects 4% to 5% volume decline in cigarette for the first half of FY27 as a result. However, the silver lining is that ITC's FMCG business is expected to post 10% revenue growth despite cigarette business challenges. Tobacco raw material costs are easing after a year of inflation. The stock has already corrected from above ₹400 to around ₹300, making valuations comfortable. Roy calls it a one-to-two year call, not a one-quarter trade, with a good dividend yield and defensive profile making it worth holding, but a meaningful re-rating trigger is only likely in the second half of FY27 once pricing normalises and volume trends improve.
As reported by The Economic Times, paint companies are taking the sharpest hit from the Hormuz crisis because roughly 40% of their raw materials are crude-linked. Asian Paints has already taken a 6% to 8% price hike, with Berger, Akzo, Kansai and Pidilite following suit. Roy expects this geopolitical disruption to be temporary, though if crude stays elevated through May or June, Asian Paints may need another round of price increases. Q1 FY27 could see 100 to 200 basis points of EBITDA margin compression across most consumer companies as cost inflation hits before pricing fully adjusts. However, companies are expected to cut advertising and discretionary costs to cushion the blow, with margin recovery expected in the second half of FY27.
According to reports from The Economic Times, within staples, Roy's top picks are Nestle, Marico and Tata Consumer — all relatively insulated from the cigarette tax shock and crude volatility. In retail, he favours Titan, where gold price tailwinds drove strong Q4 sales, and Avenue Supermart (DMart) backed by exceptional store expansion of 85 new outlets in FY26 including entry into Uttar Pradesh. VMart also makes the cut on the back of strong growth numbers. Quick service restaurants face a triple headwind including higher LPG costs, post-election fuel price hikes, and rising packaging costs, with the QSR space increasingly fragmented limiting pricing power. Roy is currently underweight on the segment. The broader message from Roy is clear: in a volatile macro environment, stick to companies with pricing power, low raw material exposure, and earnings visibility.
According to reports from The Economic Times, the broader message from Roy is clear: in a volatile macro environment, stick to companies with pricing power, low raw material exposure, and earnings visibility. Right now, that list is shorter than usual. The consumer sector outlook for FY27 faces challenges from cigarette tax hikes and crude oil shocks, with the Hormuz crisis creating additional pressure on paint companies. Investors should focus on companies with pricing power, low raw material exposure, and earnings visibility to navigate the current volatile environment effectively. The current market environment requires careful stock selection, with experts emphasizing the importance of companies that can weather the current headwinds while maintaining their competitive positioning. As per Motilal Oswal's latest macro calls, the firm is relatively positive on export-oriented segments such as Information Technology services and pharmaceuticals, while within energy, they are constructive on refining, upstream companies, and the power sector appears well-placed.
