Nifty FMCG index extends gains to 8th straight session, hits 2-month high

Shares of fast moving consumer goods (FMCG) companies were trading actively on the  Nifty FMCG index, which was trading higher for the eighth straight day, on Thursday on expectations of recovery in demand.

At 10:05 am, Nifty FMCG Index was up 0.53 per cent, as compared to a 0.30 per cent rise in the benchmark Nifty50 index. The FMCG index hit an intra-day high of 31,508 points, its highest level since November 15, 2019.

Dabur India and Jubliant FoodWorks hit their respective 52-week highs today, while Tata Global Beverages and Nestle India were trading close to their 52-week highs on the National Stock Exchange (NSE). That apart, Emami, Marico, Britannia Industries and Hindustan Unilever (HUL) from the FMCG index were trading higher in the range of 1 per cent to 2 per cent.

According to Care Ratings, factors such as favourable monsoons, expectation of tax rate cuts –including GST and personal income tax, and announcements in Union Budget of FY21 in favour of rural economy shall play a crucial role in uplifting consumer sentiment and reviving demand.

“With few definite signs of improvement in economy in the myopic future, we do not expect much improvement in Indian FMCG sector until Q3-FY21. Certain categories of food products may witness a gradual demand pick up. Personal care category, however, is expected to continue to remain under pressure at least for the next 6-7 months,” analysts at Care Ratings said in FMCG sector update.

Among the individual stocks, HUL was trading higher for the eighth straight day, surging 6 per cent during the period, in line with the FMCG index. In comparison, the Nifty50 index was up 3 per cent.

Analysts at KRChoksey Shares and Securities believe that slowdown has been witnessed in the rural sales which were traditionally ahead of urban sales. 

"In the last two quarters, however, rural growth was half of the urban sales growth due to factors such as liquidity crunch, low domestic economic activity which have weakened household spending. This is likely to affect companies with large rural exposure such as HUL," they wrote in a consumer sector Q3FY20 preview.

They added: Measures such as Low Price Packs (LPP) for affordable offerings and multiple promotions introduced by FMCG companies and government spending in infra projects and increased rural spending are expected to revive rural demand. Though the government had come up with many initiatives to address the slowdown, these measures would take time to translate to real consumption, expected to materials in the next two quarters.

According to technical analysts at ICICI Securities, HUL is one of the best performing index stock since 2016 and they expect declines to present a buying opportunity. Stock has corrected almost 12 per cent from its recent highs of Rs 2,200 and exhibits sign of fresh long build up ahead of its quarterly results.

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