Shares of Marico, Godrej Consumer Products, Hindustan Unilever, Dabur India, Emami, Britannia Industries and Nestle India ended 2-10% higher on Tuesday even as benchmark indices closed 0.5-0.6% lower.
“Companies have started guiding for recovery in business from rural regions, and this is the first time after several quarters that they are guiding positively, leading to the catch-up rally,” said Shrikant Chouhan, the head of equity research at Kotak Securities.
The defensive nature of the sector, ahead of the elections and the impending Budget, along with the forecast of a normal monsoon is also aiding, he said.
“For at least the next two quarters, we can see outperformance from these companies, based on their guidance, a normal monsoon, and them taking price hikes,” Chouhan said.Shares in the fast-moving consumer goods space have underperformed the broader market in 2023-24 (April-March), with the Nifty FMCG index gaining a little less than 18% as compared to a near 29% gain in the Nifty 50 index.Sector heavyweight HUL, in fact, saw an over 11% decline in its shares, while others including Britannia, Emami and Godrej Consumer Products have also underperformed relative to benchmark indices.”When markets were touching new highs, FMCG stocks were not moving as much,” said Nirvi Ashar, analyst at Religare Broking. “With commentary from the managements turning positive, the momentum is catching the price, and that is where we are seeing gains,” she said. She advises being selective in stock picking and is positive on shares of HUL, Godrej Consumer and Marico. She sees limited downside, and the potential for as much as 20-25% gains in HUL over a one-two year time frame, and suggests buying Godrej Consumer on dips.
While most see these shares outperforming in the near-term, Christy Mathai of Quantum AMC believes that the valuation commanded by the sector warrants caution in the long run.