FMCG shares in focus; Hindustan Unilever, Nestle India near record highs

Analysts at JP Morgan expect consumption staples to be relatively more resilient
Shares of fast moving consumer goods (FMCG) companies gained on Tuesday with Nestle India and Hindustan Unilever (HUL) ralliying up to 5 per cent in intra-day trade as analysts see limited impact on the sector due to the COVID-19 outbreak. Both these stocks are trading close to their respective record high levels on the National Stock Exchange (NSE).

Besides, Britannia Industries, Dabur India, ITC, and Emami from the Nifty FMCG index also gained over 5 per cent each, while Tata Consumer Products, Colgate Palmolive (India), Marico, and Godrej Consumer Products (GCPL) were up in the range of 3 per cent to 5 per cent on the NSE.

At 12:45 pm, Nifty FMCG index was up 4.3 per cent, as compared to 3.7 per cent rise in the Nifty50 index.

Among individual stocks, Nestle India rallied 5 per cent to Rs 16,425 in intra-day trade. The stock is 2.5 per cent away from its all-time high level of Rs 16,835, touched on March 5, 2020.  HUL gained 4 per cent to Rs 2,270, which is less than 2 per cent away from its record high level of Rs 2,308, hit on February 19, 2020.

While the Covid-19 pandemic will put the economic recovery under stress which in turn pushes back overall consumption revival in the very near term, the government’s relief package of Rs 1.7 trillion under the Pradhan Mantri Garib Kalyan Scheme should give some relief.

Analysts at JP Morgan expect staples to be relatively more resilient – Nestle India and HUL are preferred picks, benefiting from higher sales of packaged foods, home care/hygiene/personal care products in their portfolio.

“In terms of key input prices, crude has corrected sharply and the rest of the basket remains largely benign, which augurs well for earnings growth. From a recommendation perspective, we remain optimistic on Consumer Staple companies as they are still a safer bet at this point in time. We continue to remain positive on HUL, Britannia Industries and Marico and also upgrade Dabur India and Colgate-Palmolive India to Buy from Accumulate rating earlier,” analysts at Nirmal Bang Equities said in consumer sector update.

“We see comparatively less impact on overall FMCG business as few categories would witness demand boost but closure of malls and less travelling would have negative impact. We believe that the companies like HUL, Britannia would not have major negative impact given the dominance of the traditional distribution channels,” analysts at Dolat Capital said in sector update.

The brokerage firm maintains positive stance on Dabur and HUL. Due to a diversified portfolio and continuous gain in market share compared to peers, the brokerage recommends utilizing the sharp corrections in these stocks as an accumulate opportunity.

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