Select stocks from the FMCG space managed to give 50-100 per cent returns in the last year, outperforming the S&P BSE FMCG index by a wide margin which is up over 7 per cent in the same period and 16 per cent so far in 2022.
Stocks that more than doubled investors’ wealth in the last year include names like
, , and .
Stocks that were up more than 50 per cent include names like
, , , and , among others.
FMCG stocks are typically known as defensives and usually attract investors’ attention amid strong demand led by a good monsoon, fall in commodity prices as well as the festive season.
“Besides, FMCG is also believed to be a defensive sector. When the uncertainty in the stock market increased earlier this year, investors flocked to FMCG stocks in big numbers, thus giving the FMCG index another source of support,” Rahul Shah, Co-Head of Research, Equitymaster, said.
“Other important factors like fall in commodity prices, normal monsoons in most parts of the country and possible expansion in margins have also played their roles in taking the FMCG index higher,” he added.
The management of top FMCG companies are confident of demand revival in the forthcoming quarters which is a positive sign despite inflationary pressure.
In the June quarter, top FMCG companies such as
, ITC, Product, , and delivered mixed results, reporting an impact on their margins and mostly, a drop in volume in some categories.
Price increases as well as falls in commodity prices along with demand revival will help companies to maintain margins in the upcoming quarters.
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“If we look at the broader economy, the majority of the commodity prices have started to ease during the past few months, and the big FMCG companies have already increased their product prices in order to combat inflation,” Siddharth Oberoi, founder Prudent Equity, said.
“Once these companies experience the full effects of falling commodity prices such as packaging, crude, palm oil etc the impact on their bottom line would be quite strong in the coming quarters as they generally don’t decrease their prices back to the pre-inflation level,” he said.
Boost from ITC!
ITC has rallied more than 50 per cent in the last 1 year which carries maximum weightage followed by HUL in the S&P BSE FMCG index.
“If we look at the FMCG index the major weightage is derived from just two stocks which are ITC and HUL and out of these two, ITC is in a huge uptrend, the stock is currently at multi-year highs,” Oberoi said.
“This is majorly due to a steep improvement in the financial performance of the company. If we look at the current quarter, the profits of the company are up over 30 per cent on a YoY basis. That is a significant jump considering the large base on which ITC operates. A disclaimer, we have recommended ITC in one of our services,” he added.
If we look at the broader economy, the majority of commodity prices have started to ease during the past few months such as packaging, crude, palm oil etc.
The impact on the bottom line would be quite strong in the coming quarters as they generally don’t decrease their prices back to the pre-inflation level, highlight experts.
Should you go overweight ahead of Diwali?
FMCG stocks have been on buyers’ radar and could well see some price action as we approach the festive season. Historically, we have seen demand going up during the same period.
Long-term investors can use the opportunity to buy into FMCG stocks on dips, suggest experts. “We believe that as the festive season is coming near, FMCG sector will be a good bet for investors due to better volumes and margins expected from the sector,” Mohit Nigam, Head – PMS, Hem Securities, said.
“As India witnessed a healthy rainfall this year, rural consumption will also pick up as it grew 6.7 per cent in value in August along with the urban segment. Due to the high raw material cost inflation and a number of price hikes consumer sector companies will record healthy sales driven by value with a recovery in margins,” he said.
Shah of Equitymaster said that if it is a trading call then yes, being overweight on FMCG stocks to take advantage of the Diwali rush does make sense.
“The news flow over the next few weeks should remain positive for FMCG stocks thus giving their share prices a fillip. But, for a long-term investor, it is the valuations and the fundamentals of the underlying companies that matter,” he added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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