FMCG index hits record high in range-bound market; Dabur, HUL up 2%

RBI governor Shaktikanta Das said that rural demand is recovering as reflected in the pace of tractor and retail two-wheeler sales, with rising farm activity

Shares of fast moving consumer goods (FMCG) companies were trading firm in an otherwise range-bound market with the Nifty FMCG (45,814.50) and the S&P BSE FMCG (16,663.76) indices hitting their respective record highs on Wednesday in the intra-day trade. The gains came on the back of expectation of volume recovery, going forward, driven by recovery in rural demand.

At 02:35 PM, Nifty FMCG (45,779) and the S&P BSE FMCG (16,651) were up 1 per cent each. In comparison, the benchmark indices, Nifty 50 and the S&P BSE Sensex, were down 0.25 per cent and 0.14 per cent, respectively. Emami, Dabur India, Hindustan Unilever, Colgate Palmolive (India), Marico, Godrej Consumer Products and ITC gained in the range of 1 per cent to 3 per cent.

Earlier today, the Reserve Bank of India (RBI) governor Shaktikanta Das said that going into October-December quarter of financial year 2022-23 (Q3FY23), economic activity seems to have gained strength in October. "Urban consumption firmed up further, driven by sustained recovery in discretionary spending, especially on services such as travel, tourism and hospitality. Rural demand is recovering as reflected in the pace of tractor and retail two-wheeler sales, with rising farm activity," he said.

On the supply side, the agricultural sector remains resilient. Rabi sowing got off to a strong start. The area sown so far is 6.8 per cent higher than the normal sown area (as on December 2, 2022), Shaktikanta Das said.

Analysts at ICICI Securities, too, believe volume growth would recover for most FMCG companies on the back of a recovery in rural demand on the back of high agri sector growth with normal monsoon in most regions. Moreover, price cuts, grammage restoration and festive season offers would be reflected in higher volume growth in urban India.

"With the softening of some commodity prices, gross margins would improve sequentially. However, crude, soda ash, milk, wheat and some of the other commodity prices still remains at elevated levels. The recovery in margin is expected to be slow given most FMCG companies would be looking to increase promotional offers & spend behind brands to focus on volume growth," the brokerage firm said in a Q2FY23 earnings' wrap report.