FMCG Stocks Outlook
for the week – 15 to 18.11.2016
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Stocks of fast moving consumer goods companies are seen
moving in line with the broader market
due to lack of fresh cues. The Nifty FMCG index is likely to
track benchmark Nifty 50 next week.
FMCG could remain under pressure in near term.
Retail sales for FMCG companies are also likely to be hit in
the coming days due to the ongoing cash
crunch on account of the government's decision to withdraw
500- and 1,000-rupees notes from
circulation. The government on Tuesday withdrew notes of 500
rupees and 1,000 rupees from
circulation and gave general public time till Dec 30 to
exchange these notes. It has, however,
imposed certain caps on the limit of exchange and withdrawal
of currency.
Rise in cost of inputs such as flour, sugar, palm oil, and
cashew are also likely to drag down these
companies. In Jul-Sep, prices of flour rose by 15% and those
of sugar grew by 46%. The
government's move to reduce import duty on wheat has helped
stabilise wheat prices.
Flour, sugar, and cashew are major ingredients used in the
manufacture of biscuits, cakes, and rusks,
while palm oil is an important ingredient for soaps,
detergents, cosmetics, and certain fairness
creams and products.
Companies such as Godrej Consumer Products could benefit
from the rise in sales of insecticides as
the demand for such products increases on the back of
adequate monsoon rains and new product
launches. Godrej Consumer is likely to witness improvement
second half (Oct-Mar) in the
international business, mainly due to revival in Indonesia
business as household insecticides
segment growth improves. Company continues to aggressively
launch new products which has
enhanced its position in core categories.
