FMCG shares in demand; Marico, Godrej, Dabur, HUL rally up to 10%

The rural demand has seen gradual improvement and management of the companies expects visibility on green shoots on the back of better monsoons and higher infra spend by the Government of India.

Shares of fast moving consumer goods companies (FMCG) were in demand and rallied up to 10 per cent on the BSE in Tuesday’s intra-day trade in an otherwise subdued market on improved outlook.

Marico, Godrej Consumer Products, Dabur India, Hindustan Unilever, Bajaj Consumer Care, Colgate-Palmolive (India), ITC, Nestle India and Britannia Industries stocks rallied between 2 per cent and 10 per cent. At 10:20 am; the S&P BSE FMCG index, the top gainer among sectoral indices, was up 2.5 per cent, as compared to 0.4 per cent decline in the S&P BSE Sensex.

Given the comfort level in valuation and earnings, analysts believe that select staple companies offer a better risk-reward compared to several discretionary companies over the next 12-18 months. The rural demand has seen gradual improvement and management of the companies expect visibility on green shoots on the back of better monsoon and higher infra spend by the Government of India.

Among individual stocks, Marico stock hit an over seven-month high of Rs 581.75 as they rallied 10 per cent on the BSE in Tuesday’s intra-day trade on promising outlook. The stock of fast moving consumer goods (FMCG) company was trading at its highest level since October 3, 2023, when it had hit a 52-week high of Rs 595.

Amidst the backdrop of improving macro-indicators and forecast of a normal monsoon, Marico’s management expect a gradual uptick in the growth of its core categories through the ongoing initiatives to enhance the profitability of its General Trade (GT) channel partners and transformative expansion in the company’s direct reach footprint with the roll out of Project SETU.

FY24 has been a mixed year with sectoral volume growth consolidating on a low base, while commodity and consumer pricing trended lower. While premium and discretionary segments within FMCG continued to witness positive traction, demand trends in mass consumption categories belied expectations of a visible pickup owing to the slower-than-anticipated recovery in rural and urban sentiment, subdued general trade and resurgence of regional and unorganized competition, Marico said on outlook.

Shares of Godrej Consumer Products hit a 52-week high of Rs 1,349.65, surging 8 per cent in intra-day trade after the company reported a near 20 per cent rise in fourth-quarter profit before a one-time charge, benefiting from higher demand for its home and personal care products.

Hindustan Unilever rallied 5 per cent to Rs 2,360.85, extending its previous day’s 2 per cent gain on expectation of the volume growth has bottomed out and anticipate a gradual volume recovery in FY25.

HUL's wide product basket and presence across price segments should help the company achieve a steady growth recovery. There is scope for a turnaround in part of BPC and F&R; we will monitor the execution in these segments under the new CEO. The valuation at 45x FY26E EPS is reasonable given its last five-year average P/E of 65x on one year forward earning, Motilal Oswal Financial Services had said.