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Fast-moving consumer goods stocks are expected to trade with a positive bias next week as we expect a rise in gross margins of companies in this sector, when they announce Jan-Mar results, due to fall in raw material prices. Prices of key raw materials like palm oil and copra (dry coconut) have dropped and are expected to consolidate at current levels for a few months, this will help FMCG companies post better margins this quarter. Yesterday, the country's largest cigarette maker ITC raised prices of select brands in order to pass on the hike in taxes in the recent Union Budget and various state budgets to customers. The government, in the Union Budget for 2013-14 (Apr-Mar), hiked excise duty on cigarettes of over 65 mm length by 18%. Following this, states such as Rajasthan, Bihar, Gujarat and Maharashtra also hiked local taxes on cigarettes. We are of the
opinion that the price hike by ITC may lead to a small dip in sales volumes for a month, but will not lead to any significant drop in volumes on an annualized basis. They believe the price hike will help the company maintain its margins in the mainstay cigarette business.Technically, on the other hand, see the ITC stock coming under pressure in the near term. ITC has closed below its 100-day moving average of 294 rupees and shows weakness at this stage. We see it going down further to 284 rupees in the next two weeks.
