Nifty FMCG Rebounds After Record Slump, Outpaces Market

The Nifty FMCG was the top sectoral gainer on Monday, ending its longest-ever losing streak of 15 sessions since the index's inception on Sept. 22, 1999.

Over the past 15 trading sessions, from Feb. 3 to Feb. 21, the index lost 9.27%, with its sharpest decline during the period recorded on Feb. 11 when the index closed 1.94% lower. The index has been on a downward trend since Feb. 1, following the Union Budget.

Ahead of Monday's session, analysts at SBI Securities had identified 51,500 and 52,500 as key support and resistance levels, with a secondary range at 51,000 and 53,000. The index traded within the first set of levels before closing 0.36% or 187.65 points higher at 52,285.

The index opened 0.66% lower at 51,753.75 but reversed losses amid a broader market decline, with the Nifty 50 and the BSE Sensex closing 1.06% and 1.14% lower respectively.

The Nifty FMCG added Rs 9,373.7 crore to its market capitalisation during the session. Six out of the 15 constituent stocks advanced, while nine declined. 

Beverage stocks led the gains, with Varun Beverages Ltd., United Spirits Ltd. and United Breweries Ltd. among the top performers. Colgate-Palmolive (India) Ltd., Nestle India Ltd. and ITC Ltd. also ended in the positive territory.

Radico Khaitan Ltd., Balrampur Chini Mills Ltd., Godrej Consumer Products Ltd., Dabur India Ltd. and Marico Ltd. were the biggest losers. 

Analysts now see 52,400–52,500 as an immediate resistance zone, with a breakout above 52,500 potentially pushing the index toward 53,000. On the downside, support is placed at 51,600–51,500.

Only three sectoral indices ended in the positive territory on Monday, with the FMCG leading the gains, followed by the Nifty Auto and Pharma, which posted marginal gains of 0.22% and 0.02% respectively.

The fast-moving consumer goods sector has been under pressure for the past three quarters, as weak urban demand continues to offset rural growth. Companies have posted subdued earnings, with top heavyweights reporting marginal profit expansion in the third quarter. Nestle India recorded a 5% rise in profit, Tata Consumer reported flat earnings and Britannia Industries Ltd. posted a 4.6% increase in profit.

Rural demand has been improving for four consecutive quarters, with rural volume growth (9.9%) outpacing urban growth (5%) by nearly two times, according to a report by Nuvama Research on Feb. 18.

Factors like government freebies, higher rural incomes from a good monsoon, and minimum support price hikes are expected to further boost rural consumption. However, urban demand weakness is likely to persist until the first quarter of the next financial year due to high rental inflation and sluggish wage growth, according to Nuvama.

Input cost inflation remains another challenge for the FMCG companies, particularly in raw materials like palm oil, tea and coffee. This is expected to impact the gross margins of companies like Godrej Consumer, Bikaji Foods International Ltd. and Tata Consumer in the near term. This, coupled with weak demand, led to companies remaining cautious about passing on higher costs to consumers, it added.

Nuvama expects firms with greater rural exposure to outperform in the next two quarters. For instance, Dabur is expected to outpace Colgate in toothpaste sales, while Berger Paints Ltd. may grow faster than Asian Paints Ltd. The research firm also sees limited downside in consumer stocks as defensive plays are back in focus with valuations appearing reasonable.

Nuvama also reiterated the positive impact of Andhra Pradesh's liquor policy reforms on alcohol companies. In the third quarter of the current fiscal, United Spirits saw 6.1% growth in the state, aided by pipeline filling, while United Breweries benefited from a 1.5–2% growth boost. A rise in the number of weddings has also driven demand for premium spirits and liquor.

Nuvama’s top picks in the FMCG space include United Spirits, United Breweries, Pidilite Industries Ltd. and Hindustan Unilever Ltd.