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Among 13 stocks in the BSE FMCG Index, on Tuesday, five gained marginally, while the remaining declined a bit, suggesting no clear directional call, even though the index beat the benchmark index. In the last one-month period, the index has gained 11.82 per cent, while the benchmark Sensex has moved by about 15 per cent.

The cost pressure, obviously, has affected the margins of the sector players and their market valuations. For Hindustan Lever, the leader of pack, the June quarter OPMs fell largely due to a 43 bps rise in raw material costs and 75 bps jump in advertising expenses.

For ITC, the raw material cost, as a percentage of sales, increased by 311 basis points to 46.2 per cent, and the other expenses as a percentage of sales rose by 161 basis points to 19.3 per cent during the quarter. This led to a hefty decline of 500.6 basis points in ITC’s operating profit margin to 28.9 per cent in the quarter.

Most of the companies have largely absorbed cost increases, barring a few exceptions here and there. According to analysts, for fear of losing market share, most of the players refrained from price hikes to boost falling margins.

“Among the price sensitive segments, there has not been any significant passing on the rising costs. In this segment, brand loyalty is minimal,” said Mr Rajesh Agarwal of CD Equisearch. Pricing power exists only in premium brands, where conspicuous consumption plays it role.

But not all players are same. “P&G Hygiene, a two-item company, could beat other biggies in terms of margin expansion because it is in the niche market, which let it enjoy better pricing power and growth opportunity,” he added.

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