FMCG Stocks Outlook for the week – 20 to 22.10.2014
( www.rupeedesk.in )
We
believe that stocks of fast moving consumer goods companies are likely to stay
range-bound
in the week ahead as investors will focus on results of other leading
companies
scheduled to report earnings next week. The market will focus on HDFC,
Kotak
and Wipro. Action in the FMCG space will start only after Hindustan Unilever
comes
out with its numbers. Hindustan Unilever, India's largest fast moving
consumer
goods company, is scheduled to announce its Jul-Sep earnings on Oct 27.
We
think that while FMCG companies will benefit from lower crude oil prices, the
near-term
trigger for most stocks will be their Jul-Sep earnings. Ideally, with lower
crude
prices and falling inflation, FMCG stocks should have been on a tear; but the
market
will first react to Jul-Sep earnings. Only after that will investors buy into
the
best
performing stocks.
We
pointed out that lower crude prices will help FMCG players save on costs and
improve
margins in the near term; but this could also lead to a price war if local
brands
choose to pass on lower costs to customers by taking price cuts. As of now,
volume
growth has not picked up. If volume growth remains Sluggish, then price
cuts
are not too far away. Price cuts in the industry are usually initiated by
smaller
regional
players who have lower operating costs, and smaller production cycles,
giving
them ability to make price adjustments faster.