The consumer sector’s near-term outlook is turning cautious as a fresh inflationary cycle begins to challenge the recovery momentum seen earlier in 2026. After a period of stable raw material costs and demand recovery supported by favourable macros and festive tailwinds, rising crude prices – up nearly 70 per cent year-on-year in April 2026- have reintroduced margin pressures. The sector now faces a delicate balance between sustaining demand and protecting profitability, with inflation once again emerging as the key swing factor.
Historical trends suggest that the impact of inflation is nuanced rather than uniformly negative. During the 2011–2014 cycle, prolonged but moderate inflation enabled leading players to consolidate market share, aided by stronger distribution and pricing power. This translated into robust earnings growth and strong stock performance. In contrast, the 2022–2023 phase saw sharper inflation coinciding with increased competition from new-age brands, leading to market fragmentation. Companies focused more on defending their share than expanding it, resulting in slower growth, margin compression, and muted returns.
The current cycle appears closer to the latter, with heightened competitive intensity and limited pricing flexibility. While companies have initiated mid- to high-single-digit price hikes across select categories, these actions may only offset cost pressures up to crude levels of around $85 per barrel. Any sustained elevation beyond this threshold could necessitate further price increases, potentially impacting consumption volumes. Additionally, recent GST rate cuts, which had briefly supported demand, risk being neutralised as inflation pushes retail prices higher.
Emerging trends indicate a calibrated and selective pricing response by companies, reflecting both caution and the need to protect demand. Channel checks suggest that price hikes are being implemented across specific SKUs and geographies rather than broad-based increases. Meanwhile, exposure to international markets, particularly in regions affected by geopolitical tensions, adds another layer of risk to earnings visibility.
From an investment perspective, the sector remains structurally resilient but faces near-term headwinds. Recent stock corrections already factor in some of the margin pressure, but the trajectory of crude prices will be critical. If inflation moderates below key thresholds, companies could benefit from delayed price pass-through, aiding margins. However, a prolonged high-inflation environment may weigh on both volume growth and profitability, making margin trends and pricing discipline key monitorables in the coming quarters.
Marico | Target Price – ₹900
Radico Khaitan | Target Price – ₹3,850
Karnataka’s new excise policy is likely to drive MRP reduction of 10-20 per cent for P&A (premium and above) portfolio, while lower-priced brands could see price increase of around 10-15 per cent due to slab rationalisation, further boosting premiumisation in the state. Radico derives 8-10 per cent volumes from the Karnataka market. Radico Khaitan has seen a sharp shift toward P&A, with volumes rising from 4m cases in FY15 to 17m in FY26E, strengthening earnings. P&A now contributes 70 per cent of IMFL revenues (vs 48 per cent in FY19) and is expected to rise further, driven by premiumisation and efficiencies. Radico’s debt is declining steadily, supported by a healthy free cash flow generation. Radico is currently trading at 56x/46x FY27E/FY28E P/E, with RoE/RoIC of 18-20 per cent. We believe that 25 per cent EPS CAGR over FY26-28E provides adequate support for sustaining rich valuations.
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(Disclaimer: This article is by Motilal Oswal Financial Services Research. Views expressed are their own.)
