FMCG index on a roll, up 3.04%

The fast moving consumer goods (FMCG) index emerged as the forerunner, outperforming the Sensex in the market rally on Friday.

The FMCG index recorded a 3.04 per cent growth compared with a 0.66 per cent rise in the Sensex.

After stiff price wars and declining margins for many quarters, FMCG majors are looking forward to better days owing to volume pick-up, tax sops on plant locations and resultant rise in profitability.

Expectations of good December quarter results from Hindustan Lever (HLL) have also boosted the sentiment. Brokers expect HLL to post good results for the December and March quarters.

Moreover, the FMCG sector had not joined the market rally for a long time and is now picking up. No price wars are expected in the next 6-8 months.

Even over the past one month, the BSE FMCG index has posted returns of 11.19 per cent compared with the Sensex, which appreciated by 7.05 per cent.

"The performance of Colgate was good in the December quarter. Over the coming quarters, FMCG companies are expected to do better. Rural and urban incomes are rising. Moreover, it has to be noted that price wars have been limited to a few segments of the sector," said Tejas Doshi, head (Research) Sushil Finance Consultants.

Over the past one month, the major gainers in the sector were Emami (up 27.76 per cent), ITC (up 14.23 per cent), HLL (up 10.66 per cent), Marico (up 9.41 per cent), Nestle (up 7.42 per cent), Nirma (up 6.31 per cent) and Procter & Gamble Hygiene & Healthcare (up 5.75 per cent).

Although the unorganised segment and the new entrants in the organised segment continue to give tough competition to the majors, quality products and innovation can be the strong points of the latter.

Analysts add that many companies have not been sharing with consumers, the benefits of operations in areas with tax exemptions, which is adding to their margins.

Going forward, margins are expected to get better, except the shampoo and detergent categories and companies such as Emami, Marico, ITC, Godrej Consumer and to some extent HLL, are expected to do well.