FMCG shares rally as sentiment picks up

BSE FMCG Index near all-time high as monsoon revival, favourable Budget announcements spur growth

The stocks of leading fast moving consumer goods (FMCG) companies are trading higher on the BSE exchange in the past month, following a revival in the monsoon, pick-up in sentiment and a Union Budget that has attempted to boost overall consumption.

Examples are ITC, Colgate-Palmolive, Procter & Gamble Hygiene & Healthcare, Asian Paints and Emami. Their share prices are trading seven to 12 per cent higher in the past month, data compiled by BS Research shows. More important, the benchmark BSE FMCG Index is nearing last-year’s all-time high of 7,548.43. Analysts say this is a sign of good times for the sector, battling a persistent slowdown over recent years.

Abneesh Roy, associate director, institutional equities, Edelweiss, says: “With the monsoon’s revival, the risk of slowdown in rural spends is slowly abating. Metro cities are also witnessing initial signs of pick-up, which will all bode well for the sector.”

Abating of rainfall deficiency, expected to progress  further in the coming weeks, will help in the  sowing of the kharif crop. A good sowing period implies the harvest will be good, improving rural incomes. FMCG companies derive a third of their revenue from rural areas.

Analysts say a bounce-back in terms of volume growth for FMCG companies is expected to happen by the third quarter of this financial year, which coincides with the festive season. Market research agency Nielsen had recently said  the consumer confidence level had jumped by seven points during the June quarter.     

“While this is yet to translate into increased consumption, consumers are likely to open their purse strings as we head into the festive season, in response to savvy marketing stimulus,” said Nielsen India’s head, Piyush Mathur.

Companies have indicated they will increase their advertising & sales promotion expenditure as they head into the festive season. They’d so far been capping ad spending at 10-11 per cent of net sales, in view of the slowdown. This is likely to increase to 13-14 per cent of net sales as the festive season nears.