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Easing commodity prices and rising growth prospects drove some of the FMCG scrips to their 52-week highs in intra-day trade on Wednesday.
ITC, HUL, Colgate Palmolive and Marico touched their 12-month highs on Wednesday.
Colgate was the biggest beneficiary closing at Rs. 987.5 to a share, up 7.75 per cent from its previous close. The other three gained between 2.7 and 4.2 per cent over their previous close.
Experts said that FMCG businesses by nature were prone to stiff competition but given India’s size and demography, the potential was also commensurate.
“FMCG stocks have always yielded positive returns to investors in India, irrespective of whether the stock market direction was bullish or bearish,” said Mr. Piyush Garg, EVP and CIO, ICICI Securities.
“In India, consumption will only increase because a large number of consumers have shifted to branded products with an enhancement in their purchasing power.”
There is unanimity over the fact that FMCG will be one of the best businesses in India over the next decade. Companies have spelt out their intention to grow at a CAGR of close to 20 per cent.
“FMCG companies such as HUL and P&G have grand expansion plans in anticipation of the pie expanding,” said Mr. K N Rahaman, Deputy Head of Research Way2Wealth Securities.
FMCG companies have been ramping up their distribution network especially the alternative channels in order to serve their customers faster and better. “There is an increased focus on deepening their distribution channels and reaching out to the end consumers or last mile,” said an FMCG trade analyst.
The news of ITC’s intention to enter the beverages and dairy segments could have been the immediate trigger on Wednesday, said analysts.
Chartists said that the FMCG index was at the end of a bullish rally with only a five to six per cent upside from the current levels. The BSE FMCG index has returned 25.33 per cent in the last one year on a trailing basis.
“With the exception of ITC and HUL, most FMCG stocks are illiquid and hence a dramatic price correction is very much anticipated,” said Mr. Dwaipayan Poddar, Technical Analyst-Institution, LKP Securities.“There are indications according to the Elliot wave theory that the rally is going to end very soon.”
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