FMCG, paints, QSR, and retail are among the sectors likely to be impacted the most due to the escalation of the US–Iran conflict, according to domestic brokerage firm Axis Securities. The brokerage has identified these four sectors as the most vulnerable amid rising oil prices and a shortage of gas supplies.
Crude oil prices have been trending higher since the onset of the US–Iran war on 28 February, rising over 60% so far. The surge follows supply disruptions triggered by the closure of the Strait of Hormuz by Iran, which is using the move as leverage to pressure the US to halt its attacks.
India is heavily dependent on crude oil imports, sourcing nearly 85% of its requirements, with a majority coming from the Middle East.
In addition, gas supplies have also taken a hit, as major producers in the region halted liquefied natural gas (LNG) production after their facilities were heavily damaged by Iranian attacks, impacting India the most, as it meets nearly 50% of its natural gas requirements through imports.
Given the high linkage of crude derivatives to packaging, logistics, and raw materials, the brokerage expects the situation to compress margins, delay demand recovery, and disrupt supply chains.
FMCG sector faces margin pressure and demand risk
Axis Securities said the FMCG sector faces a multi-pronged cost shock, not from crude oil directly as a fuel, but as a raw material embedded throughout the value chain. The most acute pressure comes from packaging materials—PET, HDPE, and specialized laminates.
With these inputs accounting for 10–15% of the cost base, the brokerage expects the sector to likely witness 100–200 bps margin compression in the near term. While companies are resorting to calibrated price hikes (8–12%) and shrinkflation, demand elasticity, especially in mass categories, remains a key constraint, limiting full cost pass-through.
Amid rising input costs and pressure on margins, Axis Securities believes Hindustan Unilever and Dabur India are likely to be the most impacted, while Nestlé India may remain relatively resilient due to its stronger pricing power and ability to pass on costs.
Paint sector – Maximum sensitivity to crude
Turning to the paint sector, which is most vulnerable to energy prices, given its high dependence on crude derivatives, has already pushed Asian Paints and other companies to raise paint prices in response to rising raw material costs.
However, the brokerage believes that despite 6–8% price hikes, a 300–500 bps margin compression could occur, with limited ability to fully pass on costs in a competitive environment. Elevated prices could also delay discretionary repainting demand, particularly in urban markets, thereby impacting volume recovery.
With crude-linked raw material costs surging, the brokerage expects Asian Paints and Berger Paints India to face the sharpest earnings pressure, as limited pricing flexibility could weigh on margins.
QSR sector to face cost pressure, operational disruption
The Quick Service Restaurant (QSR) sector faces a dual shock—cost inflation and operational disruption, with 60–65% dependence on LPG for cooking. Supply constraints and rising LPG prices, along with higher edible oil and packaging costs, are impacting store-level profitability.
Additionally, inflation-led pressure on discretionary spending could result in lower footfalls and reduced ticket sizes. However, organized chains are relatively better placed due to stronger supply chains, implying a mixed near-term outlook.
Given the sharp rise in LPG, the domestic brokerage firm sees Jubilant FoodWorks as the most exposed to operational disruptions and margin pressure, while Westlife Foodworld may remain relatively resilient due to better supply chain efficiencies.
Retail sector – Inflation shock and demand compression
The brokerage noted that the retail sector is witnessing an inflation-led demand slowdown, as higher fuel and product prices compress consumer purchasing power. This is driving downtrading towards essentials, while discretionary segments (apparel, lifestyle) face weaker demand.
At the same time, retailers are grappling with margin pressure from higher logistics costs and limited pricing flexibility, leading to a slower recovery trajectory.
Amid an inflation-led demand slowdown and rising logistics costs, Axis Securities expects Trent and V-Mart Retail to be more vulnerable to discretionary demand weakness, while Avenue Supermarts may remain relatively defensive.
Disclaimer: : The promoters of HT Media Ltd, which publishes Mint, and Jubilant Foodworks are closely related. There are, however, no promoter cross-holdings.
The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
