Are FMCG companies staring at a stock-price correction?

Inflationary pressures are biting into FMCG players’ volume growth. Moreover, plateauing rural demand due to falling disposable, seems to have hit consumption-based companies.

According to the company its revenue growth in the quarter was in double digits, while volumes were flat owing to the weaker consumption sentiment and a strong base.
With muted volume growth across segments, the company expects overall consolidated revenue to be in low teens with lower margins on a yearly basis.

The numbers cast a spell not just on Marico, but highlight the turmoil faced by the entire sector.
According to a Business Standard report, rural demand for fast-moving consumer goods was weak in the October-December quarter on a YoY basis, with sales likely down by 8-10%.

And the trend, analysts say, may continue to haunt players for a while.
For one, the current inflationary pressure is due to supply-side constraints and appears to be more stubborn than usual.
Besides, resurgence of fresh virus variants and ensuing restrictions are acting as one of the stumbling blocks in normalisation of supply side issues.
Considering this, analysts at Centrum Broking are ‘equal-weight’ on consumer goods’ companies.
ICICI Securities, meanwhile, is ‘neutral’ on the sector as companies face margin headwinds.

So, given the headwinds, are FMCG investors in for a wild ride?
According to analysts at Prabhudas Lilladher, input cost scenario remains volatile for FMCG players, but margin weakness may bottom out in Q3.
Besides, over 20% correction from recent highs makes select players attractive from a long-term perspective.
Let’s go to Suvarna Joshi, senior research analyst at Axis Securities, to know more.

Vinit Bolinjkar, head of research at Ventura Securities, meanwhile, believes the govt’s push towards capex-building will support rural income over the medium-term, supporting overall demand in the space.

Overall, the near-term trajectory remains choppy for FMCG players amid growth concerns. However, medium-to-long term outlook remains strong on expectations of a pick-up in rural income, and easing commodity prices.

As regards today, Services PMI data, stock-specific news flow, developments around the Omicron Covid-19 variant, FII activity and global sentiment will guide the market trajectory.

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