FMCG Stocks Outlook for the week – 22 to 26.06.2015
(Range
bound trade next week)
( www.rupeedesk.in )
Stocks
of fast-moving consumer goods companies are seen range-bound next week in
consolidation after the recent sharp swings in the stocks over the past
two-three weeks.
As
for the fundamentals for this sector, improved monsoon prospects are likely to
support, while the ongoing regulatory issues on processed food products of FMCG
companies may continue to have a negative impact.
The
India Meteorological Department may raise this season's rain forecast to 90-91%
of the long period average from 88%, as the condition of the southwest monsoon
has been positive so far, Minister of State for Earth and Sciences Y.S.
Chowdary said on Thursday.
As
per IMD data, India's monsoon rains from Jun 1 till yesterday were 93.0 mm, 10%
above normal. Monsoon rains are crucial for the FMCG sector, as it has a
significant bearing on rural demand for consumer products. In report released
on Thursday, Deutsche Bank made an interesting observation on the impact of
monsoon on FMCG companies.
Consumer
staples companies are highlighting weak monsoon risk for FY16; we find this
intriguing. Analysis of about 30-year data does not support this hypothesis
(correlation between HUL's sales and agri-GDP growth is 0.36). In 2013, staples
companies expressed confidence (bordering on complacency) that 2HFY14 would be
better due to good monsoons. In reality, 2HFY14 volume growth lagged 1HFY14. We
find monsoons and agri-GDP growth have a higher correlation for discretionary
consumption.
Market
participants will continue to eye updates on Nestle India's Maggi noodles issue
and on the food regulators' measures to improve quality of processed food
products. A positive for Nestle India was that tests conducted in Karnataka,
Chhattisgarh, Assam, Arunachal Pradesh, Sikkim, Meghalaya and Mizoram, as well
as in Hong Kong showed that lead content in Maggi noodles were far below toxic
levels.
