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Shares of fast moving consumer goods (FMCG) companies were on a roll, with the BSE FMCG index surging over 5 per cent at 21,029.47, hitting a record high in Wednesday’s intra-day trade on expectations of improved business outlook. The index has bounced back 10 per cent from Tuesday’s low. It crossed its previous high of 20,863.68 touched on January 5, 2024.
At 11:27 am; FMCG index, the top gainer among sectoral indices, was up 5.4 per cent, as compared to 2.2 per cent rise in the BSE Sensex.
Heritage Foods, Emami, Jyothy Labs, Mrs. Bectors Food Specialities, Dabur India, Prataap Snacks, Bikaji Foods International, Marico, Radico Khaitan, Honasa Consumer, Tilaknagar Industries, Hindustan Unilever (HUL) and United Spirits from the BSE FMCG index rallied between 8 per cent and 20 per cent.
The BJP-led NDA has won the 2024 Lok Sabha elections with a full majority (296 out of 543 seats) for an unprecedented third consecutive term, albeit the numbers were well below the Exit Poll predictions of ~370 seats and the BJP’s own ambitious target of 400+.
Analysts expect some populist measures to address rural stress and lift sentiments at the margin, given the nature of the verdict. As rural growth revives, FMCG sector is well-positioned to leverage on rural growth, as it has made strong infrastructural investments in rural markets, according to analysts.
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Despite the reduced majority, we expect the policy agenda of Modi 2.0 (Investment-led growth, Capex, Infrastructure creation, Manufacturing, etc.) to continue, although with some tweaks, Motilal Oswal Financial Services (MOFSL) said.
While the broad thrust on capex and investment-led growth continues, the agenda going forward could also include measures for reviving consumption at the bottom-of-the-pyramid, some relief in taxation measures, and indeed the rationalization in the GST structure, the brokerage firm said.
Meanwhile, with improved macroeconomic indicators, enhanced government spending, a favorable monsoon forecast, moderate retail inflation and reduced volatility in commodity prices, the upcoming year holds promise for a gradual uptick in consumption sentiment across both urban and rural.
In the near term, HUL, the FMCG giant expects gradual demand recovery, aided by increased government spending, improving macro indicators, better monsoon (above normal forecast) and better crop realizations. Net-net, HUL expects volume recovery to remain gradual.
Management noted that rural recovery is contingent on three factors agri income, labor income, and repatriation income. The proposed increase in government capex can positively impact labor and repatriation incomes, while agri income will be largely monsoon dependent, according to analysts.
