Indian consumer goods companies may be at peak profitability just as energy costs tighten the supply chain. Market expert Sameer Dalal from Natverlal & Sons Stockbrokers warned that while recent earnings from FMCG firms showed strong volume growth, the current margin cycle is "nearing its peak" because of rising fuel prices.
Dalal told ET Now that India faces a structural disadvantage to the US in handling elevated crude oil prices. "You are oil importers and with crude at $104 a barrel, it hurts us," he said, contrasting India's position with the US, which exports crude and brings more money into the economy at high prices.
Why Q1 Will Be Harder Than Q4
Many FMCG companies reported surprisingly strong volume growth, with some posting growth of 9 to 10 percent. However, Dalal cautioned that recent quarters benefited from low-cost inventory built when oil and fuel prices were lower. "The pain point of a lot of the companies is going to actually be felt in Q1 because a lot of them were sitting on low-cost inventory," he said.
As diesel and fuel prices rise in the coming months, logistics costs will ripple through the supply chain. Higher shipping costs from factories to consumers will force someone in the value chain to absorb the hit, Dalal explained. Companies will struggle to maintain current margins once they move to fresh, higher-cost inventory.
Earnings Downgrades Loom if Oil Stays High
Dalal expects slowing economic activity and weak production trends to show up clearly in Q1 results. "I think Q1 you are going to see numbers quite subdued, companies not able to produce to their full capacity, economy showing signs of slowing down," he said.
His biggest concern is that if elevated crude prices persist and geopolitical tensions do not ease, the market will face continuous earnings downgrades. "The problem is if this war does not end soon... FY27 you are going to see earning downgrades continually happening over the year," he warned.
The broader issue, Dalal noted, is that domestic institutional buying is masking emerging stress points beneath the surface. Despite foreign investor selling, rupee inflows from Indian funds are propping up valuations. "The stock market is probably ignoring a lot of the pain points that are going to come in the near future," he said.