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Stocks of fast moving consumer goods companies that have large market capitalisation are seen correcting downward in the week ahead as current valuations are high following the run up in share prices over the past several weeks. Also, fresh investments in FMCG companies' stocks will be limited by the attractiveness of stocks of other rate sensitive sectors such as information technology and banks as the interest rate cycle has turned. Majors such as Hindustan Unilever, and Godrej Consumer Products are expected to decline as their stocks are currently at high values.
In the slow economy, we see sales volume growth as a major challenge for major FMCG players in the medium term. In a bid to maintain sales volume growth, large players are offering discounts, which is eroding margins and may weigh on companies' stocks. Mid-sized companies such as Marico and Emami, on the other hand, are seen relatively safeguarded from margin pressure due to lower raw material cost and as consumers get value-conscious, substituting premium brands with less expensive ones. ITC may see some pre-budget correction as a likely hike in excise duty on cigarettes could scare investors away.
