Top 5 Worst Performing Sectors of 2024. Will These Turnaround in 2025?

2024 has been a year of reckoning for Indian equity markets, marked by a correction and consolidation phase after an 18-month-long bull run.

Key indices, including the Nifty 500, Nifty 50, Nifty Smallcap 100, and Nifty Midcap 100, have faced increased volatility and drawn downs from their peaks.

The slowdown in earnings growth has been the key driver of this downturn. Of the companies that have reported results so far this year, many of them have recorded negative earnings growth.

Combined with rich valuations and persistent inflationary pressures impacting consumer spending, the market correction seems justified and long overdue.

Some sectors lagged in the recent bull run, with some giving back gains in the correction. Savvy investors see these corrections as opportunities to reassess out-of-favor sectors.

This article aims to highlight the five worst-performing sectors of 2024, analyse the reasons behind their struggles, and explore whether there is potential for a turnaround in 2025.

Through careful research, we aim to determine if this downturn could set the stage for a promising rebound.

#1 FMCG

The top worst-performing sector in 2024 was the fast-moving consumer goods (FMCG) sector with a 1-year return of 7.5%.

The Nifty FMCG index, which peaked at 66,305 is now quoting at below 56,000.

The biggest companies in this sector are Hindustan Unilever, Nestle, Godrej Consumer Products, Britannia Industries, Dabur, and Marico.

Here's a summary of what various companies are saying about past performance, the outlook for the FMCG sector, and what we think about the sector bouncing back.

Companies are facing a difficult environment with high food inflation, muted demand, and heavy monsoons affecting rural markets.

Firms like Varun Beverages, Britannia, and HUL observed a slowdown in urban consumption, while rural growth remains positive, according to HUL.

Despite declining rural wages and unemployment, rural markets are showing resilience and have outpaced urban growth for the past three quarters, as noted by Dabur.

Companies are reporting a mixed performance across segments. Varun Beverages saw growth in its CSD, juice, and packaged drinking water segments. Conversely, HUL faced challenges in personal wash and foods & refreshments.

Rising input costs, especially for raw materials, have affected margins, leading companies like Britannia and HUL to raise prices.

Significant growth is observed in e-commerce and quick commerce, the shift to new channels is putting pressure on traditional trade partners, prompting likes of Dabur to make inventory corrections to address profitability issues.

Most companies are cautiously optimistic about the future, anticipating recovery due to stabilising commodity prices, improved rural demand, and festive season sales.

Companies like Emami and HUL are focusing on volume-led growth by expanding distribution, investing in key brands, and increasing market share.

Despite urban slowdowns, premiumisation remains strong, with companies like Britannia and HUL noting consumers' willingness to pay for higher-quality products.

Companies are investing in innovation and expanding their portfolios to capture growth opportunities.

As new channels emerge, FMCG players are adjusting their strategies to effectively utilise both traditional and modern trade while addressing challenges faced by general trade partners.

The management commentary and results show that the sector is adapting to a complex landscape.

Despite ongoing challenges, companies in FMCG sector are positioning themselves for future growth.

Historically, during economic slowdowns, adding FMCG stocks has proven beneficial. With the right strategies in place, the sector is likely to rebound significantly once temporary issues are resolved.

For a detailed overview, check out our FMCG sector analysis.

#2 Oil & Gas

Second on the list is the oil & gas sector. The Indian oil and gas sector is a very vast sector with a variety of companies.

Upstream companies like ONGC and Oil India focus on finding and extracting crude oil and natural gas from the earth, and their profits depend heavily on global oil prices.

Midstream companies like GAIL and Petronet LNG handle the transport and storage of gas and oil; they earn stable revenue because they sign long-term contracts.

Downstream companies, such as IOC, BPCL, and HPCL, refine crude oil into products like petrol and diesel and sell them; their earnings depend on the "crack spread" (the difference between the cost of crude oil and the price of refined products).

Integrated companies like Reliance Industries operate in all these areas, which helps it balance risks and ensure steady profits.

City gas distribution companies, such as Mahanagar Gas (MGL) and Indraprastha Gas (IGL), distribute piped natural gas (PNG) to households and businesses and compressed natural gas (CNG) for vehicles, benefiting from increasing demand for cleaner energy.

Service companies like Aban Offshore and Deep Industries provide equipment and services to support exploration and production.

Here's a chart showing the performance of oil & gas index for the past year.

To understand where the sector is headed, we need to understand the current ongoing trends in the sector.

Refining margins have been under pressure in recent quarters due to factors such as lower cracks and falling international crude and product prices. This volatility in refining margins is likely to persist in the near term.

Companies are investing in expanding refining capacity and upgrading existing facilities to enhance efficiency and profitability. Examples include HPCL's Visakh refinery expansion and BPCL's Bina petrochemical expansion.

While current petrochemical margins are subdued, there is an expectation of a recovery in the medium to long term. The growth in demand for petrochemicals is projected to be driven by factors such as increasing consumption in emerging markets.

Demand for natural gas in India is robust, particularly from City Gas Distribution (CGD) and gas-based power generation, creating a positive outlook for gas distributors.

Numaligarh Refinery's expansion from 3 million to 9 million tons will increase demand for oil and gas, which could potentially benefit companies like Oil India.

The commissioning of pipelines like the Indradhanush Gas Grid (IGGL) and the DNPL will further unlock gas demand and production potential by connecting to high-demand areas and new customer segments.

However, limited pipeline infrastructure currently constrains production and profitability for some gas distributors.

Gas distributors are facing challenges from the government's reduction in Administered Pricing Mechanism (APM) gas allocations to the CGD sector, impacting profitability.

Companies like GAIL are exploring sourcing options like LNG and CBG to mitigate the impact of reduced APM allocations and ensure profitability.

Volatility in global LNG prices and crude oil prices directly impacts gas sourcing costs and profitability for distributors.

Companies strive to secure long-term gas contracts at favourable prices to mitigate price volatility and maintain profitability.

Gas distribution companies like GAIL are aiming for better marketing margins. Factors such as the spread between crude-linked LNG and Henry Hub LNG influence marketing margins and profitability.

Companies like IGL are focusing on operational efficiency, including optimising pipeline capacity utilisation and expanding CNG station networks, to improve profitability.

The emergence of electric vehicles (EVs) presents a potential threat to the long-term growth prospects of CNG and the profitability of gas distributors, especially in metropolitan areas.

Overall, despite the weak performance of the sector, companies in this space are continuing to expand and improve their operations, particularly CGD companies seem to be a part of a long-term trend of moving towards clean energy.

The sector could do well if global geopolitical tensions ease up and crude prices remain stable.

For a detailed overview, check out our oil & gas sector analysis.

#3 Food Beverages & Tobacco

Third on the list is Food Beverages & Tobacco sector.

It also includes companies selling edible oil, sugar, alcoholic beverages, tobacco, and quick-service-restaurants.

Increased costs of raw materials like wheat, sugar, edible oil, and packaging due to inflation and supply chain disruptions have squeezed profit margins for the sector.

Stringent regulations on tobacco and alcoholic beverages, including higher taxation and advertising restrictions, have negatively impacted growth.

Reduced discretionary spending due to economic slowdowns and higher inflation has hurt demand for premium products like branded snacks, alcoholic beverages, and restaurant services.

Intense competition, especially in the quick-service restaurant (QSR) and packaged food segments, has pressured market share and pricing power.

Below are the stock returns from a few of the stocks from the sector.

	Stock Name	1 year returns (%)
1	ITC Ltd	4.76%
2	United Spirits Ltd	14.25%
3	Tata Consumer Products Ltd	-1.53%
4	CCL Products (India) Ltd	13.67%
5	KRBL Ltd	-16.80%

Data Source: BSE

As inflation moderates and disposable incomes improve, demand for food and beverage products, especially discretionary items, is expected to rebound.

Consumers increasingly prefer premium and healthy options, providing opportunities for companies to diversify their product portfolios and improve margins.

Barring recent declines in same-store sales growth, urbanisation, and changing lifestyles continue to drive the expansion of quick-service restaurants.

The long-term trend of increasing occasions for eating out is a consistent secular change, which is favourable for QSR stocks.

Rising global demand for Indian food products, spices, and tobacco presents a strong opportunity for export-focused companies.

While the sector faces short-term challenges, the long-term outlook is positive, driven by demographic trends, and evolving consumer preferences.

#4 Chemicals & Petrochemicals

Fourth on the list is the chemicals & petrochemicals sector. The chemical sector was the darling of markets in 2021 and 2022.

However, after excessive euphoria, the sector started facing headwinds and stocks started correcting.

	Stock Name	1 year returns (%)
1	SRF	-9.19%
2	PI Industries	12.54%
3	UPL	-1.28%
4	Tata Chemicals	8.68%
5	Bayer CropScience	-10.00%

Data Source: BSE

Right now, the industry is facing significant margin pressure due to increased competition, especially from China, where new capacities have come up in recent years.

This is particularly affecting the Agrochem sector, which has also seen challenges with inventory correction, pricing pressure, and weather patterns impacting demand.

Certain segments, such as energy applications, are experiencing volatility linked to external factors like refinery market dynamics.

Global economic conditions, geopolitical events, and supply chain disruptions are creating uncertainty and impacting demand and pricing in various segments.

Despite challenges, India presents a robust market with growing domestic demand for chemicals. This is driven by factors such as rising consumption levels and government initiatives supporting infrastructure development.

Large foreign companies are seeking to diversify their geographic presence and reduce reliance on specific markets. India is emerging as a preferred destination for sourcing chemicals, which may benefit Indian companies.

There is considerable potential in emerging sectors like battery chemicals, and recycling.

Chemical companies are actively pursuing cost optimisation measures and improving operating leverage to mitigate margin pressures and enhance profitability.

Capacity expansions in various segments are expected to drive volume growth and improve margins over the next few years.

Companies are investing heavily in R&D and technology to develop new chemistries, products, and asset-light growth models to capture emerging opportunities.

While companies are committed to growth, capital expenditure plans are being optimized and moderated to ensure financial prudence and healthy balance sheets.

#5 Cement and Construction

The last sector that has underperformed is cement and construction sector.

The cement industry is experiencing a slowdown due to reduced capital expenditure, particularly in infrastructure projects.

Government capex has dropped, impacting investments by railways and the National Highways Authority of India (NHAI).

State government capex has also declined. This slowdown was further aggravated by a prolonged and intense monsoon season.

However, some companies anticipate demand revival in the second half of the fiscal year, driven by infrastructure projects announced in the Union Budget, improved rural demand due to a good monsoon and farm prices, and post-Diwali demand.

Industry-wide estimates for all-India cement demand growth for the full year range from 4% to 5%.

Weak demand and pricing pressure are significant headwinds for cement companies. Companies are strategically prioritizing maintaining realizations and market share in this challenging environment.

Some companies experienced price improvement starting in September 2024. Price increases are anticipated with improved demand post-Diwali.

Despite the market slowdown, premiumization remains a key focus area. Companies are seeing a record high share of premium products in the trade segment.

Concreto Uno, a premium cement variant of Nuvoco Vistas, is gaining traction in the East. Premiumization strategies contribute to better realizations and EBITDA margins.

Facing weak demand and pricing pressure, companies are concentrating on operational efficiency.

Efforts to reduce power and fuel costs are yielding positive results. Companies are implementing strategies to optimize energy costs further, including increasing waste heat recovery capacity.

Cost savings are expected in the coming years from renewable energy, coal blocks, and logistical improvements.

Consolidation in the cement sector is occurring through mergers and acquisitions. This trend is expected to increase the share of the top cement companies in the market.

While the near-term outlook is cautious due to market dynamics, many expect a demand recovery in the second half of FY25.

This recovery is dependent on the execution of infrastructure projects announced in the Union Budget, which remains a key monitorable. Improved rural demand and the festive season are also anticipated to contribute to the recovery.

Mirroring the cement industry slowdown, several construction companies have also experienced muted order inflow and execution challenges.

Below is a table showing the returns of few of the stocks from the sector.

	Stock Name	1 year returns (%)
1	Larsen and Toubro	13.50%
2	UltraTech Cement	25.77%
3	ACC	9.32%
4	IRB Infrastructure Developers	23.28%
5	Ircon International	12.22%

Data Source: BSE

This is particularly pronounced in infrastructure projects, attributed to reduced government spending.

For instance, IRB Infrastructure Developers notes delays in projects like Toll-Operate-Transfer (TOT) and Build-Operate-Transfer (BOT), with expectations of some bidding activity resuming by December 2024.

Some companies have also mentioned project delays caused by the monsoon season and political issues.

Despite the slowdown, construction companies maintain a healthy order book, providing revenue visibility for the next few quarters.

For example, IRB Infrastructure Developers has an order book of approximately Rs 70 billion (bn) executable over six quarters. However, revenue growth projections for the full year are cautious.

Project delays from factors like land acquisition, approvals, and utility shifting are contributing to execution challenges. Construction companies are focusing on mitigating these issues and optimizing project execution.

Labor shortages are also a concern, particularly in specialized areas, but companies are proactively addressing this through various initiatives.

Amid this slowdown, some construction companies are shifting focus to the private sector.

NBCC (India) aims to secure orders from projects related to housing, land monetization, and redevelopment.

Companies are also exploring diversification opportunities. H.G. Infra Engineering is venturing into the water sector, pursuing projects like treatment plants and Hybrid Annuity Model (HAM) projects.

ITD Cementation is also considering expanding into transmission and distribution Engineering, Procurement, and Construction (EPC) projects.

Similar to the cement industry, construction companies anticipate a demand recovery in the second half of FY25.

This is contingent on the timely execution of government-announced infrastructure projects and increased private-sector investments.

While companies aim to maintain profitability, margin pressures may persist in the near term due to competitive intensity and potential cost fluctuations.

However, efficient execution, cost optimization strategies, and a focus on higher-margin projects can contribute to margin improvement in the medium to long term.

Conclusion

Each of these sectors has faced unique challenges ranging from inflationary pressures and regulatory hurdles to margin compressions and reduced government spending.

Despite these headwinds, there are green shoots of recovery visible in the form of evolving consumer preferences, infrastructure initiatives, and strategic shifts within companies.

As we approach 2025, there is promising potential for a turnaround driven by stabilizing commodity prices, recovering demand, and growth in sectors like clean energy and urbanization.

Long-term investors may find value in these underperforming areas, as past downturns have often presented attractive entry points.

Happy Investing.

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