Mumbai: Shares of Hindustan Unilever Ltd, India’s largest FMCG firm, touched a record high of Rs998.75 on Wednesday morning as the government raised its monsoon forecast leading to a rally in FMCG stocks.

The scrip, however, pared some of the gains and closed at Rs995.90, up 4.6% the previous session’s closing.

The benchmark S&P BSE FMCG Index also traded 10 points away from its historical high, reaching 9,531.55 points. Hindustan Unilever was the top gainer in the index, trading 4.04% higher at Rs990.60 at 2:17pm.

The FMCG bull run came in on the back of the India Meteorological Department revising its forecast from normal to above average rainfall this monsoon, indicating higher agricultural growth and consumer spending this fiscal year.

The rally is more good news for FMCG companies that have been suffering under reduced consumer spending after the government’s demonetisation move on 8 November last year. Since then, companies in the sector and analysts tracking them have been seeing recovery.

In April this year, HUL’s parent firm Unilever announced in its quarterly results that the India unit had recovered from demonetisation’s impact, Mint had reported on 21 April.

This is in line with analysts’ reports previewing FMCG companies’ earnings for the fourth quarter ending March 2017. In a report dated 14 April 2017, HDFC Securities said that the effects of demonetisation were lingering.

“Although the demonetisation impact from demand point of view had nearly vanished, wholesale channels and rural market growth continued to be challenging in 4QFY17," the report said. It estimated an “average" performance for HUL with 4% revenue growth and 3% domestic volume growth year-on-year for the quarter.

Equities brokerage firm IIFL expects better results for HUL, it said in a report from 27 March this year, titled Hindustan Unilever: Good Times Ahead. IIFL estimated 7.5% sales growth and 3.5% volume growth for HUL in the quarter ending March.

“Growth is recovering for HUL, with both volume and value growth accelerating even from pre-demonetisation levels as pipeline issues in soaps are resolved and price growth accelerates," the report said. “The launch of Baby Dove (soap brand) and (Ayurvedic personal care brand) Ayush and extension of (Ayurvedic hair oil brand) Indulekha to north India are progressing as per plan. The green shoots of recovery seen in Sep-Oct 2016 are yet to re-emerge. However, given recent trends, we are hopeful of further acceleration."

However, HUL could still see challenges in its supply chain that was disrupted when wholesalers and stockists ran out of cash during demonetisation.

“There still is some liquidity stress with large wholesalers and deep interior retail," the report said. “Stock levels are not back to pre-demonetisation levels, although they have recovered from Q3 levels. The stock levels may not return to pre-demonetisation levels in a hurry, since it seems wholesalers and retailers are able to function at lower levels."

The problem can get worse in the coming quarters as goods and services tax (GST) is implemented on 1 July this year and wholesalers and retailers begin to get rid of the stock to avoid losses with the new tax rates, Mint reported on Tuesday.

The report added that while HUL was trading at high multiples of 40 times its estimates for FY18, these were unlikely to correct on anticipation that HUL sales will see recovery.