Shares of fast-moving consumer goods (FMCG) companies surged to new highs on Wednesday on the back of price hikes of personal care products and the food security Bill, which is expected to trigger greater consumption spend in rural areas. Investor preference for defensive stocks in an uncertain economic environment is another factor driving these stocks.
In contrast to benchmark indices that gained 0.3-0.5% on Wednesday, the BSE FMCG index gained 3.4% to close at 7,400.33 ? after touching an all-time high of 7,437.17 during the day. Stocks like Hindustan Unilever (HUL), ITC, Dabur, United Spirits, and McDowells touched their new life-time highs on Wednesday.
With 9% gains, HUL was the top gainer of the day after the consumer giant raised prices of its personal care brands Dove body lotion and Lakme deep pore cleanser by 11-36%. Dabur India surged nearly 4.5% to its new high of 167.55 on the BSE, while United Spirits gained 0.6% to a new high of R2,702.40.
?Sharp price hikes in three SKUs, in our view, has been today?s trigger. We expect promotions and select price hikes to happen in categories like soaps and detergents in coming months due to the rupee depreciation,? said Abneesh Roy, associate director, institutional equities ? research, Edelweiss Securities.
Analysts also said the recent move by the RBI to curb volatility and fall in the Indian rupee and the uncertainty with regard to interest rates is forcing the market to shift focus to defensives sectors like FMCG from interest rate sensitives. Roy explained that the sharp move in consumer stocks started because of shift to defensives due to rate hike by RBI on Tuesday.
In addition, analysts felt that the Food Security Bill could trigger higher consumption spends particularly in rural India which is an important market for most FMCG companies. ?Investors anticipate more populist measures after the Food Security Bill. Which is why FMCG stocks are on fire,? said an analyst with a domestic financial services firm, requesting anonymity.
Andrew Holland, CEO, Ambit Investment Advisory, continues to remain positive on FMCG stocks. ?Since the beginning of CY13, we have not changed our view on the defensives and we never got bullish on interest rate sensitives…and we are not likely to switch from defensives to interest rate sensitives for a while,? Holland said.
