On April 9, amid the broader market’s record-breaking streak, FMCG stocks bore the brunt of selling pressure, emerging as some of the worst performers.
Leading FMCG players like Hindustan Unilever, Colgate, Marico, UBL, Tata Consumer, Godrej Consumer Products, and Britannia witnessed declines of up to 2 percent, juxtaposed against a modest 0.4 percent uptick in the Nifty 50 index.
The cautious sentiment pervaded the market as analysts voiced concerns over the FMCG sector’s performance in the fourth quarter. Factors such as sluggish rural growth, delayed winter, and intensified competition contributed to this apprehension.
Analysts at Elara Capital anticipate that the FMCG sector will likely register single-digit growth in both value and volume during the March quarter. This subdued outlook further weighed on investor sentiment towards FMCG stocks.
In their preview note, analysts stated, ‘We expect our FMCG universe to report revenue and volume growth of 2.8 percent year-on-year (YoY) and 3.6 percent YoY, respectively in Q4FY24.’
According to the brokerage firm, regional firms operating in the biscuits and laundry segments are posing a challenge to larger firms due to favorable commodity prices. Elara Capital analysts highlighted, ‘This fierce competition is dragging companies such as Hindustan Unilever and Britannia Industries.’
Phillip Capital analysts anticipate most companies to report improved margins on an annual basis due to benign input costs. However, they foresee a moderation in margin expansion sequentially. They explained, ‘Even though gross margins are improving, not all of this benefit will translate into higher earnings before interest, taxes, depreciation, and amortization (EBITDA). This is because consumer companies are planning to invest more in advertising and promotion to boost sales volumes.’
The brokerage expects significant gross margin gains in the March quarter for HUL, Marico, Godrej Consumer, and Colgate.
Market experts emphasized the necessity of rural demand recovery for the FMCG sector’s improvement. Elara Capital analysts stressed, ‘Reviving rural demand is crucial for the FMCG sector, with companies pinning hopes on a favorable monsoon, which could stimulate the rural economy.’
Year-to-date, the Nifty FMCG index has declined over 5 percent compared to a 4 percent rise in the Nifty.
Sources: moneycontrol.com
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