FMCG Stocks Outlook: Low inflation, pay hikes to support next week Saturday, Sep 6
FMCG shares will track the broad market in the absence of adequate triggers, but will find support from softening inflation and pay increases of central government employees that will be effective from September- end onwards. India's headline inflation slipped to 12.34% for week to Aug 23 from 12.40% led by a fall in prices of primary articles like foodgrains, cereals, vegetables, and edible oils among other things. This is the second consecutive week that the headline inflation rate has declined, and it is expected that next week too, inflation may ease as the high base effect sets in. "We expect the whole of September to print lower inflation rate due to high base effect," Shubhada Rao, chief economist at YES Bank, told after the inflation data came in. We also expect the Sixth Pay Commission's salary hikes will start coming into the market from October onwards, and a significant part may be channelised to the FMCG sector. It is seen that when salaries increase, consumers tend to upgrade on FMCG products, and also spend more on food. This trend will have a positive effect on FMCG sector as a whole, but more on Hindustan Unilever, ITC, Procter & Gamble, among others. Last month, the Cabinet had approved 21% average salary hike for central government employees along with wage arrears with retrospective effect from Jan 1, 2006. The revised salary will be credited to government employees at the end of September. SHARES IN FOCUS Frontline shares like ITC and Hindustan Unilever will remain in focus mainly due to price hikes that are seen offsetting margin pressure, even as select raw material prices ease. ITC had hiked prices of Gold Flake Premium and Bristol brand of cigarettes. While Gold Flake Premium stock with revised prices has come into the retail market, Bristol inventory is yet to reach markets. Hindustan Unilever, too, is said to have hiked prices across its range of colour cosmetics over the past two months. Procter & Gamble Hygiene & Health Care will also be in focus after the company reported a strong 83.7% growth in Apr-Jun net profit at 232.4 mln rupees on net sales growth of 19.4% to 1.5 bln rupees. Sales growth was driven by double-digit growth in Vicks and feminine hygiene brand Whisper, while margin expansion due to lower raw material cost and improved efficiencies lifted net profit. Margin pressure from higher advertising and staff cost was partly offset by a decline in raw material costs, and operating margins improved by 90 basis points to 16.5%. Buoyed by the good results, the stock ended the week up 4% at 802 rupees. Bombay Stock Exchange's FMCG Index ended nearly unchanged from a week ago at 2,216.52 points. In comparison, Sensex closed the week with a loss of 0.5% at 14483.83 points, while Nifty was down 0.2% at 4352.30 points. The next trigger for FMCG stocks will be their Jul-Sep earnings, and any news of price hikes or fall in raw material costs. Tea manufacturers will be in focus due to hike in tea prices at the auctions in Kolkata. While plantation owners like McLeod Russel will gain from the rise in tea prices, branded tea companies like Tata Tea and Hindustan Unilever will be impacted by higher raw material prices. Following are the closing prices Friday of most liquid FMCG shares on NSE, compared with a week ago: Company Sep 5 Aug 29 Change Hind Unilever 245.10 245.40 -0.1% ITC 189.90 188.70 0.6% Colgate-Palmolive 409.30 409.55 0.1% Dabur 96.60 91.45 5.6% Marico 59.10 60.25 -1.9% Procter & Gamble 802.00 768.00 4.4% BSE FMCG Index 2216.52 2215.60 0.1% Nifty 4352.30 4360.00 -0.2% Sensex 14483.82 14564.53 -0.5% B.Karthick Research Analyst. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
