Friday, May 20, 2022
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Is This The Best Time To Buy Into FMCG Stocks?

Five months after demonetisation, the FMCG sector’s recovery prospects remain tentative

Is This The Best Time To Buy Into FMCG Stocks?
Is this the Best time to Buy into FMCG Stocks?

Harsha Upadhyaya, CIO-equity, Kotak AMC

We are positive on the FMCG space. Over the past two quarters the rural business has not been contributing much. Now, we are seeing a broad recovery in rural demand. In FY18, we expect the volume growth to be higher by a couple of basis points than what we saw in FY17. Margins should remain healthy for the companies that see volumes pick up. Government’s rural development policies should help in reviving rural demand. Urban demand is already seeing a recovery. However, one needs to have a stock-specific approach with most companies trading at more than 30 times their 12-month forward earnings. We have a few FMCG stocks in our portfolio where we not only see an upside from the expected volume growth, but also see market share gains for these companies. We would continue to maintain our current position and add more as and when there is an opportunity.

Vinay Khattar, senior vice president, head—research, Edelweiss Securities

The valuations look very stretched right now, for a number of stocks in the FMCG space. While demonetisation blues are behind us, the way consumer demand plays out in the coming quarters will be critical for their earnings growth. This will be the first stable quarter after demonetisation. The impact on volumes due to destocking and inventory rejigs in 4QFY17 and 1QFY18 have already been factored in by the market. The bigger concern is the forecast of a poor monsoon. This could further dent the volumes. Also, if the trend of increasing raw-material prices along with declining discretionary spend sustains, it doesn’t augur well for FMCG players. The entry of Patanjali has increased the competitive intensity. As it is eats into the market share of the incumbent players, the sentiment gets affected when the overall market pie is not growing. 

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