Will it rain on the FMCG parade?
The BSE FMCG index has fallen by 8.9% since end-August but still trades at a price-to-earnings multiple of 51 times its trailing 12-month earnings
One pillar holding up expensive FMCG (fast-moving consumer goods) share valuations has been the promise of healthy rural growth. Since a fair part of rural demand depends on agricultural income, a downtrend in rainfall is something investors should keep a watch on.
The government’s crop watch report shows cumulative rainfall is down by 10% from a year ago as of 19 September (see Chart 1). Just a month ago, the decline was at 7%, higher than the 3% fall reported in the 20 July report.
A recent Reuters report said that uneven distribution of rainfall could affect yields of rice and cotton. How exactly this dip in rainfall affects output will be clearer in the coming months. This can prove to be a risk for rural spending, although it will show up with a lag.
The BSE FMCG index has fallen by 8.9% since end-August but still trades at a price-to-earnings multiple of 51 times its trailing 12-month earnings.