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Consumer staples demand in India continued to remain weak in the first quarter of FY26, primarily due to sluggish urban consumption however the situation is expected to improve in the second quarter, according to a report by Motilal Oswal.

The report highlighted that there was no material improvement in demand trends in the April-June quarter, as consumption patterns continued to mirror those seen in recent quarters.

It stated "No material uptick in demand trends is expected in 1QFY26 as they continue to mirror recent historical quarters. Demand remained impacted by weakness in urban consumption".

The report mentioned that urban demand remained under pressure, while rural markets showed signs of gradual recovery. Additionally, the early onset of the monsoon season negatively affected the demand for summer-led products, home insecticides (HI), and out-of-home consumption categories.

Although the report also noted that the raw material (RM) prices have softened, the benefits of this decline are expected to be visible from the second quarter of FY26 onwards.

This is because many companies are still carrying high-cost RM inventory, especially in key inputs like tea, wheat, palm oil, and edible oils. As a result, gross margins for consumer staples companies under coverage are expected to contract by 170 basis points year-on-year in Q1FY26.

Similarly, EBITDA margins are likely to shrink by 130 basis points due to high inventory costs and negative operating leverage.

Despite this challenging environment, some support for overall revenue growth in Q1FY26 came from price hikes taken by companies. However, volume growth is expected to remain in the low- to mid-single digits.

Looking ahead, the report expects demand trends to improve gradually in the upcoming quarters. Factors such as a healthy monsoon outlook, income tax benefits, interest rate cuts, and a gradually improving macroeconomic environment are likely to support the recovery in consumption trends across both urban and rural markets.