Shares of fast moving consumer goods (FMCG) are trading higher for the second straight day on expectation of a rise in rural consumption, after the Union Cabinet approved a hike in minimum support prices (MSP) for Kharif crops by 1.5 times of the input cost for the 2018-19 season on Wednesday.
The Nifty FMCG index hit a new high of 29,408 on the National Stock Exchange (NSE) today, surpassing its previous high of 29,161 recorded on June 13, 2018. At 01:05 pm; the FMCG index was the largest gainer among sectoral indices, up 1% at 29,404 points, as compared to a marginal rise in the Nifty 50 index.
Analysts remain bullish on the rural economy and the consumption space given the recent development and the fact that the weather forecasters – both government–owned and private – are predicting a normal monsoon this year. This, they say, can help boost rural consumption while keeping a check on inflation.
“The Budget promise, if implemented correctly, will boost farmers' income, speed up consumption and have a positive effect on the economy. The market cheered this development. A host of companies in the auto and consumer space, will reap the benefits of more money coming into the hands of rural India,” analysts at IIFL Wealth Management said in note.
Among individual stocks, Hindustan Unilever (HUL) gained 1 per cent to hit a new high of Rs 1,690 levels, extending its previous day’s two per cent gain on the NSE. While ITC rallied 3% to Rs 271, Emami and Marico were up 1% each on Thursday.
Though the outcome of the general elections scheduled for 2019 remains uncertain, analysts at Nomura think the government will focus on the rural and agricultural economy in the run-up to the event.
“There are signs of a pickup in the rural economy which are reflected in improving volume growth in rural India reported by FMCG companies, improving sales of tractors and automobiles and expanding agri / tractor financing loan book of NBFCs,” write Saion Mukherjee, Neelotpal Sahu and Sanjay Kadam of Nomura in a recent report.
Mahindra and Mahindra Financial Services, Hero MotoCorp, Crompton Greaves Consumer Electrical, Dabur India and Mahindra and Mahindra are the five stocks Nomura believes that will benefit in this backdrop.
Besides forecast of a normal monsoon in FY19, the likely absence of disruptive events (like demonetisation or the goods and services tax), higher minimum support price for Kharif crops, a robust new launch pipeline and distribution expansion (undertaken by most companies in the last three - four years) are some of the factors, analysts at Motilal Oswal believe, lend confidence about a further recovery in rural growth.
Hindustan Unilever, Britannia Industries, Emami, Colgate-Palmolive and Dabur are their preferred names to play the rural recovery theme.
“On the consumption side, we believe Pidilite Industries will incrementally benefit from the shift from unorganised to organised trade for adhesives due to GST implementation; Page Industries offers a compelling, capital-efficient long-term lifestyle play on the growing/premiumising innerwear category; and there is a long-term volume/earnings growth opportunity in United Breweries,” says Deven Mistry, an analyst tracking this segment at Motilal Oswal Research.