Nifty FMCG declines 2%, HUL hits 52-week low: What's behind the selling?

Shares of fast moving consumer goods (FMCG) companies were reeling under selling pressure on Tuesday amid concerns of rising input costs hitting margins.

The Nifty FMCG index declined 1.7 per cent to 52,940 level in the intraday trade, dragged by Nestle India (down 3.3 per cent), Colgate Palmolive (3.25 per cent), Godrej Consumer Products (3 per cent), United Breweries (2.4 per cent), Tata Consumer Products (2.38 per cent), and United Spirits (2 per cent).

Marico, Britannia, Varun Beverages, Hindustan Unilever, ITC, and Dabur India, on the other hand, slipped in the range of 0.8 per cent to 1.8 per cent. 

Malaysian palm oil futures rose on Tuesday, with the benchmark palm oil contract for June delivery on the Bursa Malaysia Derivatives Exchange gaining 0.38 per cent to 4,252 ringgit per metric ton during early trade. For Q4FY24, palm oil prices are lower by 7.5 per cent Y-o-Y but up 7 per cent from the previous quarter's average. 

Dalian's palm oil contract, meanwhile, rose 0.29 per cent, and was heading for its tenth session of gains, while its soyoil contract and soyoil prices on the Chicago Board of Trade were little changed.

Last week, Malaysian palm oil futures hit 4,291 ringgit ($916.10), their highest level since March 3, 2023, underpinned by stronger rival edible oils and robust demand from key buyers.

According to reports, robust performance of competing oils and persistent apprehensions over diminishing reserves in Malaysia, the world's second-biggest palm oil producer, have heightened demand from key importers such as India, China and the Middle East. 

Back home, among individual stocks, shares of HUL, that uses palm oil as a key raw material for its body wash and few food products, hit a fresh 52-week low of Rs 2,258. With today's decline, the stock has shed 6.3 per cent so far this month as against 0.5 per cent dip in the benchmark index. 

To curb risks from changes in global oil prices, the company has announced collaboration with the Andhra Pradesh government for palm oil production at investments exceeding Rs 300 crore. 

Localising palm oil production can potentially give HUL enhanced cost efficiencies, lower forex volatility, and a more secure supply chain, analysts said. 

"We reckon HUL would have marginally negative pricing in the near term but FY25 would witness a recovery in both pricing and volume growth. Due to wage and media inflation, FMCG players are likely to see modest price hikes in FY25. Unless there is a big geopolitical factor, prices of palm oil and crude are expected to remain stable in FY25. Raw material deflation is likely to ease off gradually from H2FY25 paving the way for the anticipated longer-term price growth," said a report by Nuvama Institutional Equities.