Stock Market Today: The FMCG Index has continued to consolidate during the month of September. Trading at close to 56500 levels, the Nifty FMCG index is only marginally 0.7% up 0.7%. despite announcements on the GST reforms.
Amongst stocks while Britannia Industries and Dabur India share price have gained up to 7%, ITC and Marico share flat is almost flat. Hindustan Unilever Ltd (HUL) share price is actually slightly down.
The analyst are watchful on multitude of factors to lift demand namely upcoming festive season, rural recovery helped by good monsoon, declining inflation among others.
In the past two to three years’ weak consumption was in the back of commodity inflation-driven price hikes. The price hikes outpaced income growth as per analysts leading to impact.
However now this obstacle would be partially mitigated by the deflationary effect of the GST rate reduction. Additionally, the recent decrease in personal income tax, the approaching pay commission, the advantageous base for urban consumption, the easing of commodity prices (tea palm, coffee), and a healthy monsoon all bode positively for FMCG consumption over the next 12 to 15 months.
Here is what analysts say
Analysts at Kotak Institutional Equities said that they expect volume/mix-led revenue growth starting in Q3. Select food categories (such as namkeen and biscuits) may also see some unorganised-to-organised shift as the lower GST rate could reduce the price gap. Further the GST-rate cut would offer some headroom for price increases in the medium term (Second half FY 2027 and FY2028).
We anticipate that the majority of businesses will pass the benefit on to customers (anti-profiteering provision) in the form of increased grammage, particularly in price point packs, added Kotak. However as per analysts, it remains to be seen if companies tweak prices to push premiumization.
Meanwhile the analysts at Antique Stock Broking believe that GST rate cut is expected to drive volume growth (improve to mid-high single digit) across majority of the FMCG companies. The benefit is likely to be passed towards the consumers depending upon the portfolio mix via increase grammages (in lower SKUs) and price cuts (in larger packs). They prefer GCPL, Marico and Emami in the consumer staples.
Britannia , Nestle and Colgate Palmolive (India) Ltd are expected to be the key beneficiaries of GST reforms, followed by Dabur India and Hindustan Lever as per Kotak
However there are some words of caution too.
The FMCG sector, including giants like HUL and Nestle, might experience a slower, more muted response despite rate reductions on essentials like soaps and toothpaste from 18% to 5%, said Divam Sharma- Co Founder and Fund Manager at Green Portfolio PMS. Their multi-layered distribution networks involving countless intermediaries, efficiency gains could leak out along the way, taking north of one to two years for full earnings growth to reflect in stocks, added Sharma.
Disclaimer: The views and recommendations above are those of individual analysts or brokerage companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
