The Hindu Business Line : FMCG stocks shine

Mumbai, Jan. 7 There seems to be a reversal of fortune happening in the fast moving consumer goods sector with the BSE-FMCG index hitting its 52-week high on Monday.

While the benchmark index went up by 0.61 per cent on Monday, BSE-FMCG index surged by 3.30 per cent, ending up being the highest gainer for the day.

This sector, which was in disfavour with investors for more than a year now, seems headed for better days.

Among indices, the BSE-FMCG gained the maximum over the week reporting a rise of 7.95 per cent. The Sensex itself went up by 2.59 per cent during this period.

Segments such as food processing and edible oils seem to be on the path of growth and diversification, said analysts.

In the last Union Budget, the Government had also taken steps to uplift the food processing sector; as a result the industry is performing well, said an analyst with Religare.

“In the past, there was pressure on input prices of these goods and it was difficult to pass it on to the consumers, but over a period of time, progressively, the cost effect is being passed on to the consumers,” he added.

The sector also has the benefit of having a very small degree of correlation with global factors, thus providing a kind of hedge in volatile markets according to analysts.

“To some extent, the FMCG sector is insulated against global factors and is increasingly driven by domestic markets” said Ms Shahina Mukadam, head of research, IDBI Capital Market Services Ltd.

Disposable income

According to some analysts, the increase in the disposable income of households has had a direct and positive correlation to the performance of this sector.

“The Finance Minister indicated that there might be a relaxation in the personal income tax burden, which would mean higher take home incomes and increased consumer spending,” said Mr Anand Shah, analyst, Angel Broking Ltd.

Over the week, ITC has gone up by 9.69 per cent, Hind Unilever (10.92 per cent), Nestle Ltd (0.08 per cent), Tata Tea (7.91 per cent), and Marico Ltd (14.06 per cent).

On the other hand, United Spirits fell 2.33 per cent, United Breweries (-2.25 per cent) and Godrej Consumer Products Ltd (-0.33 per cent). Analysts said these stocks fell not due to industry, but company-related factors.

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