FMCG companies are leveraging the current upturn in demand for detergents by passing on higher input costs to consumers. Analysts highlight that demand for detergents is estimated to have grown 9-10 per cent over the last six months and that's largely owing to a revival in demand in urban areas. | |
| However, key inputs for detergents such as linear alkyline benzene (LAB) are currently hovering near Rs 70,000 a tonne, about 40 per cent higher than six months ago. |
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| Also, packaging costs have risen by about 10-15 per cent during this period, which was largely owing to higher polymer prices. |
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| To partially offset this rise, both Hindustan Lever and Procter & Gamble are set to raise detergent prices by 4-5 per cent. The bullish sentiment on the street helped Hindustan Lever to rise almost 3.5 per cent to Rs 191.5 on Monday. P&G Hygeine, too, gained about 2.3 per cent to Rs 823. |
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| This planned price hike would be the second one for this year. In March 2004, both players had cut detergent prices by about 25-30 per cent to revive demand. |
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| Meanwhile, the earlier detergent price hike in February 2005 helped players in partially offsetting the hike in input costs. As a result, segment profit margin of HLL's key soaps and detergents business fell 90 basis points to 13.92 per cent in the September quarter. |
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| The detergent business is quite important for HLL, and contributed to almost 40 per cent of the company's profit before interest and tax in the September 2005 quarter. |
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| Analysts highlight that the latest price hike for detergents is expected to help manage the pressure on operating margins better in the detergents business. |
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| Meanwhile, these expectations have helped HLL outperform the Sensex over the past month "" HLL has gained about 21.6 per cent compared with a 17 per cent gain in the broader market. Both HLL and P&G are expected to do well on the bourses. |
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| Emerging Markets: All in the family |
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| Juxtapose the stock markets of Brazil, Mexico, Taiwan, South Korea, Turkey and India since the beginning of October and you find that the ups and downs have been quite similar. These are the markets that made new highs in late October, fell subsequently that month and are on a roll again as they surpass their previous highs. |
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| What this indicates is that fund flows in this bull market across markets are similar. Most developed markets as well as most emerging markets have seen sales as investors found cash a safe haven in late October. |
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| As the outlook for equities changed in November, stock markets started recovering across the world. With falling oil prices, a stronger dollar and expectations that US Fed would stop rate hikes from March 2006, fund flows improved across markets. |
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| According to Emerging Portfolio Fund Research, emerging market equity funds have attracted inflows of $1.87 billion, which is 1.04 per cent of their total assets in the week ending November 9. Going by the stock market indices, these inflows would have only gone up since then. |
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| In 2005, total inflows in emerging market equity funds have gone up by $14.3 billion as compared to $2.8 billion in 2004. |
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| Another visible trend is that the markets that fell the most like Turkey and India in October, have ended up gaining the most between October-end and now. |
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| In terms of valuation, India still commands the highest P/E of 15.7 among these six countries, as calculated by the Financial Times, which takes into account companies that cover 75 per cent of the market capitalisation. |
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Turkey has the second highest P/E of 15.2. Brazil has the lowest P/E of 10, while South Korea has a P/E of 10.8. While South Korea and Brazil both appear cheaper than India, the rise in the markets indicates that FIIs seem to be believe that Indian companies will do much better than other markets in the next year.
| GAINING GROUND
Gain/loss in % for market index | | Country | Oct 4-28 | Oct 28 -
Nov 25 | | Brazil | -6.28 | 8.88 | | Mexico | -2.22 | 8.34 | | India | -12.66 | 15.19 | | South Korea | -8.21 | 13.37 | | Taiwan | -8.29 | 8.79 | | Turkey | -12.87 | 18.43 |
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