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Analysts optimistic as FMCG shares surge up to 10%, hint at ‘start of a catch-up rally’

Ritesh Agarwal, Founder, OYO

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The recent surge in shares of fast-moving consumer goods (FMCG) companies could mark the onset of sector outperformance over the next few months, experts suggest. They anticipate continued gains, even for investors entering the market at current levels.

On Tuesday, despite benchmark indices closing 0.5-0.6% lower, shares of Marico, Godrej Consumer Products, Hindustan Unilever, Dabur India, Emami, Britannia Industries, and Nestle India finished 2-10% higher.

Shrikant Chouhan, the head of equity research at Kotak Securities, noted, “For the first time in several quarters, companies are forecasting a business recovery in rural regions. This positive guidance is sparking a catch-up rally in the market.”

He also mentioned that the defensive characteristics of the sector, particularly in anticipation of the elections and the upcoming Budget, coupled with predictions of a normal monsoon, are contributing to its resilience.

Continue Exploring: Rural markets outpace urban consumption in FMCG growth for the first time in five quarters: NielsenIQ Report

Chouhan stated, “We anticipate outperformance from these companies for the next two quarters, driven by their positive guidance, expectations of a normal monsoon, and their implementation of price hikes.”

In the fiscal year 2023-24 (April-March), shares within the fast-moving consumer goods sector have lagged behind the broader market, with the Nifty FMCG index recording a gain of just under 18%, in contrast to the nearly 29% increase seen in the Nifty 50 index.

In fact, sector heavyweight HUL experienced a decrease of over 11% in its share value, while other key players such as Britannia, Emami, and Godrej Consumer Products have likewise shown weaker performance compared to benchmark indices.

Nirvi Ashar, an analyst at Religare Broking, remarked, “While markets were reaching new highs, FMCG stocks weren’t keeping pace. However, with optimistic management commentary emerging, momentum is now driving prices upward, leading to the gains we’re witnessing.”

Continue Exploring: FMCG firms eye volume growth rebound in FY25 with hopes pinned on lower inflation, favorable monsoon

She suggests a selective approach to stock picking and expresses optimism regarding shares of HUL, Godrej Consumer, and Marico. She perceives limited downside risk and foresees the potential for gains of up to 20-25% in HUL over a one-to-two-year timeframe. Additionally, she recommends purchasing Godrej Consumer during market dips.

While many anticipate these shares to outperform in the short term, Christy Mathai of Quantum AMC holds the view that the sector’s current valuation justifies caution for the long term.

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