Consumer staples, once the darlings of the Dalal Street, are losing steam amid concerns of growing inflationary pressures. The Nifty FMCG index, which yielded negative returns only once since 2009, has lost 6.4% over the last six months, against the Nifty50’s return of about 1%. The fall would have been much steeper, but for cigarette major ITC, which held up with a 12.3% gains. ITC – the eight-largest weighted stock on the Nifty, dominates the FMCG gauge with over a quarter of weight on the index.
Analysts believe inflation and weak rural sentiments are here to stay for near-term. “We expect negligible (or negative) volume growth and mid-to-high single digit value growth across the staples pack. Food & Beverage categories should fare better than some home & personal care categories. We expect Tata Consumer Products, Nestle India and ITC (FMCG) to report resilient print relative to peers,” said Kotak Institutional Equities on Wednesday.
Shares of Marico, plunged as much as 4.2% on Wednesday – the biggest loss since March 2020 – after the company said the sector was facing subdued consumption and weak rural sentiment in its update for Q4FY22. According to an exchange filing, its revenue growth for January–March was in low single digits, while volumes were marginally positive. “Despite the challenging macro context, the India business stayed relatively firm, riding on focused execution and market share gains,” the company said.
Godrej Consumer Products leads the pack of the fallen over the last six months with a 26.1% decline. That was followed by Hindustan Unilever, Emami and Britannia Industries. While the stock of HUL has come off 20.3% in the past six months, Emami and Britannia Industries saw their shares falling by 17.8% and 16.7%, respectively. Shares of Marico have declined 7.6% in the last six months whereas Colgate Palmolive slid 5.3% during the same period.
Kotak Institutional Equities expect low-to-mid single digit value growth for Marico and Colgate-Palmolive, led by flattish volumes. According to the brokerage, raw material inflation would continue to impact gross margins for most companies despite price hikes.
The consumption trends remained subdued during the quarter, amid weak rural sentiment and inflation in global commodities aggravating due to geo-political tensions. Despite price hikes across FMCG categories, persistent inflation continued to hurt consumer wallets.
