ITC, HUL: Is it time to bet on FMCG stocks in an uncertain market?

If the Nifty FMCG index manages to sustain above the 35,000-levels, it is expected to see a fresh breakout toward 36,200 to 36,400 levels

As states announce localised lockdowns and weekend curfews to pull the plug on the rapidly spreading coornavirus, the demand for packaged foods has risen with consumer goods companies, kirana stores and online grocery platforms seeing early signs of stocking up. 

As per media reports, Kirana stores and supermarkets have seen a 25 per cent spike in weekday grocery shopping volumes, while online grocer Grofers has seen a 30 per cent spike in weekly demand in the markets that have been affected by the second wave, particularly for packaged foods categories. FMCG firms such as ITC, Parle Products, Marico, Emami and CG Corp Global, on their part, have assured uninterrupted supply of their products based on the learnings from the previous year's lockdown. READ ABOUT IT HERE

At the bourses, the Nifty FMCG index has underperformed on the National Stock Exchange (NSE) by gaining 1.5 per cent on a year-to-date basis, as against a 3.7 per cent rise in the benchmark Nifty50 index till Tuesday, data shows. However, since March 1, the FMCG index has surged 7 per cent on the NSE compared with a 0.1 per cent decline in the Nifty index. 

And analysts believe, the outperformance is likely to continue on the back of a robust earnings show in the March quarter of FY21. The FMCG sector, which saw a strong growth momentum in Q2FY21 and Q3FY21 on the back of a consumption shift in key categories from the unorganised to the organised sector, is expected to report steep growth in Q4FY21 as well.

ICICI Securities expects the firms under its coverage to report a 20.2 per cent (aggregate) revenue growth on account of sales decline of 7-15 per cent in base quarter. However, their coverage universe may see a 50 bps margin contraction due to a sharp rise in raw material prices.

"We believe packaged foods, health supplements, edible oil, immunity boosting product have continued the stronger growth in Q4. Moreover, some discretionary categories like cosmetics, skin care, juices would have also witnessed stronger growth due to pent-up consumption. Further, new products launched in last one year are contributing 2-3 per cent for FMCG companies’ sales, which depicts higher product acceptance from the organised sector," the brokerage said in a result preview report.

Individually, it believes Dabur, HUL, Zydus, Tata Consumer & Marico may witness robust 22-35 per cent sales growth on the back of low base, strong demand in key categories & pricing growth in some categories like soaps, hair oil & tea. Besides, it expects ITC (FMCG) to grow 15 per cent during the quarter.

Given this, should you buy FMCG stocks? Here's what charts show:
 

NIFTY FMCG

Likely target: 36,200 - 36,400

Upside potential: 4.84% - 5.42%

If the index manages to sustain above the 35,000-levels, it is expected to see a fresh breakout toward 36,200 to 36,400 levels. The recent weakness has seen the index holding the support of the 100-days moving average (DMA), currently placed at 33,690 levels, as per the daily chart. That said, the overall trend is bullish as long as the index trades above its immediate support level of  34,000. CLICK HERE FOR THE CHART
 
ITC Ltd (ITC)

Likely target: Rs 248 (only above Rs 216 with an addition in follow-up buying)

Upside potential: 14.81%

As long as the stock holds 50-weekly moving average (WMA), currently placed at Rs 196 levels, the upside bias is expected to cross and sustain above 100-WMA placed at Rs 216 levels. So far, the stock has been unable attract any follow-up buying above 100-DMA, which has resulted in the corrective moves. Any recovery in follow-up buying may take this stock towards Rs 248 levels, which is its 200-WMA. CLICK HERE FOR THE CHART
 
Colgate Palmolive (India) Limited (COLPAL)

Likely target: Rs 1,600 -  Rs 1,620

Upside potential: 3.90% - 5.19%

The stock is currently in a consolidation range of Rs 1,660 to Rs 1,500 levels. The 200-DMA is currently placed at Rs 1,500 levels. Till the stock defends the support of 200-DMA, the rebound may see a rally towards Rs 1,600 to Rs 1,620 levels, as per the daily chart. CLICK HERE FOR THE CHART
 
Hindustan Unilever Ltd (HINDUNILVR)

Likely target: Rs 2,600 to Rs 2,650 (after breakout of Rs 2,500)

Upside potential: 4.00% - 4.80%

After crossing the earlier negative reversal mark (resistance) of Rs 2,456 levels, the stock is set to breakout above Rs 2,500 levels. The immediate support comes at Rs 2,400. Although, volumes have remained sluggish on the recent upside, the price strength is not showing aggressive weakness. A surge above Rs 2,500 mark may price levels of Rs 2,600 to Rs 2,650 levels. CLICK HERE FOR THE CHART
 
Dabur India Ltd (DABUR)

Likely target: Rs 590 - Rs 600

Upside potential:4.42% - 6.19%

The recent sessions have seen the stock scaling new all-time highs. This shows a strong upside sentiment. The stability above the previous resistance of Rs 552 suggests an upwards rally towards Rs 590 and Rs 600 levels, as per the weekly chart. The immediate support comes at Rs 550 levels. CLICK HERE FOR THE CHART
 
Marico Ltd (MARICO)

Likely target: Rs 445 - Rs 455

Upside potential: 6.46% - 8.85%

The recent reversal, near the resistance of the Rs 430 level, saw the stock taking support at 200-DMA. This is an indication of a strong support. Subsequently, a rebound, aimed at conquering the resistance, indicates the underlying strength in the stock. This move is accompanied by the Moving Average Convergence Divergence (MACD), which too has crossed the zero line on the upside. A breakout above Rs 430 may see Rs 445 and Rs 455 levels, as per the daily chart. CLICK HERE FOR THE CHART