The official forecast of a normal monsoon saw the FMCG indices on both the bourses move up by about 2 per cent on Wednesday.
News of positive monsoon brings cheer to FMCG companies as rise in agricultural production will increase rural income and revenues.
“Companies that depend on agriculture for their raw material, like Britannia, Marico and Hindustan Unilever, will see the pressures on their margins reducing due to lower commodity prices as supply of agricultural goods would increase,” said Ms Chitrangda Kapur, an FMCG analyst with Angel Broking.
The Indian Meteorological Department on Tuesday had announced that the southwest monsoon this year would be 98 per cent (normal) of the long period average with a model error of plus or minus 5 per cent. This means a normal monsoon, which would increase farmers' incomes, creating higher demand for products of the FMCG companies.
A bumper crop this monsoon would also ease the inflationary pressures that had built up around commodities and agricultural products. “A normal monsoon will improve rural income, which is positive for companies like Dabur who see a major portion of their revenue coming from the rural market,” said Mr Dharmesh Pancholi, Senior Manager- Advisory (Equity), Sharekhan.
The other sectors that benefit from a normal monsoon are auto, consumer appliances and fertilisers, he added.
The FMCG stocks that rose the most on Wednesday were Colgate Palmolive (3.23 per cent), HUL (2.56 per cent) and United Spirits (1.82 per cent). Shares in the BSE FMCG index advanced 0.44-3.23 per cent.
The FMCG sector is generally the go-to sector in a falling market as investors feel that irrespective of economic or market conditions, consumption will not decline in this sector.
While remaining volatile through January to March, the Sensex gave returns of about 6.2 per cent. During the same period, the FMCG sector gave returns of 10.5 per cent.
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