FMCG shares under pressure; Emami dips 5%

At 1416 hours, the CNX FMCG index was down 1.2% compared to a marginal 0.02% decline in the CNX Nifty.

Shares of fast moving consumer goods companies (FMCG) were under pressure, with most of the frontline stocks from the sector trading lower by 1%-5% each on the National Stock Exchange (NSE).

Hindustan Unilever (HUL), Emami, GlaxoSmithKline Consumer Healthcare, Colgate Palmolive (India), Dabur India and ITC were down 1%-5% each.

At 1416 hours, the CNX FMCG index was down 1.2% or 248 points at 19,783 compared to a marginal 0.02% decline in the CNX Nifty at 8,327.

In the past one month, the FMCG index had rallied 5.5% compared to a 3.8% rise in the benchmark index till yesterday.

According to Karvy Stock Broking, slowdown in the overall economy and unfavorable business environment in the rural markets would compel the companies to increase promotional offers and advertisement & promotion (A&P) spends. Furthermore, this is most likely to result in price pass-on and reduction in realizations.

Lack of pricing-led growth coupled with tepid volume growth should keep revenue across several consumer companies muted in 1QFY16. Benign raw material costs, though, are expected to lead to margin expansion. However, with companies under pressure to re-invest the margin benefits to drive volume growth, operating margin expansion is likely to be limited, Spark Capital said in a results preview.

In May 2015, the Food Safety and Standards Authority of India (FSSAI) found Maggi noodles samples to be unsafe for consumption and many other packaged food items have come under scanner. This has significantly hit Nestle’s sales, but has also led to the decline in growth in the foods category and may impact HUL, Dabur and ITC’s food categories as well, according to Phillip Capital India Research.

For the FMCG sector as a whole, volume growth will be sluggish. Government’s anti-smoking stance has led to a significant increase in excise duties and value added tax (VAT) rates on cigarettes. ITC is expected to continue with double-digit volume decline, the report added.

Among individual stocks, Emami was down 5% at Rs 1,114, extending its previous 6% decline on the NSE.  HUL and GlaxoSmithKline Consumer Healthcare were down 3% each at Rs 895 and Rs 6,061 respectively.