Met dept’s forecast of above-normal September rainfall augurs well for FMCG consumption
Rural consumers account for 36% of the FMCG sector and they can drive consumption up
Shares of fast moving consumer goods (FMCG) companies rose sharply on Thursday with the BSE FMCG index hitting a record high over hopes of a boost to rural consumption after the India Meteorological Department forecast September rains to be above normal.
Benchmark indices also hit another record with the BSE Sensex closing at 57,852.54, up 514.33 points to 0.90%. The Nifty was at 17,234.15, up 157.90 points or 0.92%
Rural consumers comprise 36% of the FMCG sector, and rural consumption boosted by a normal monsoon augurs well for such companies, said Abneesh Roy, executive director, Edelweiss Securities. He expects rural FMCG consumption to grow faster than urban this financial year. September rains will be crucial for filling up reservoirs and for paddy sowing.
FMCG stocks have seen an uptick in the last few months. Since January, the BSE FMCG index has gained 18%, while the BSE Sensex rose 21%.
Last month, there were price hikes across soaps, detergents, edible oils, toothpastes and some foods. Hindustan Unilever raised the price of Dove, Hamam, Lifebuoy and Lux soaps by 5- 15%. Godrej Consumer Products Ltd L raised the price of Cinthol and Godrej No.1 soaps by 5-7%.
In detergents, HUL has increased prices by 2-4% in Wheel and Surf Excel, while P&G raised the price of Tide Plus by 5%. There were 4-5% price hikes in toilet cleaners by HUL.
In toothpastes, Colgate has raised prices of SKUs of Cibaca and Active Salt by 4%, HUVR raised the price of Close Up Red by 6% and Dabur has raised the price of Babool by 4%. Dabur has also raised the price of Lal Dant Manjan by 3%. In shampoos, HUL has taken 5-6% price hikes in Clinic Plus and Dove.
In face wash, HUL has increased the price of Glow & Lovely face wash by 3%, while Himalaya has raised the price of Himalaya purifying neem face wash by 8%. Selective price increases were also seen in face creams, body lotions and hair oils, said Jaykumar Doshi and Sushruta Mishra, analysts, Kotak Institutional Equities Research.
There were price increases across foods and beverages such as Marico Saffola Gold, by 7%. In tea, Red Label and Taj Mahal saw 3-4% price increase.
India’s southwest monsoon managed to avoid the deficient/drought tag in August by a whisker, with cumulative rainfall at 9% below LPA (long period average). Defying hopes of normal activity as per IMD, August clocked a deep rainfall deficit of 24.1%—the worst the month has seen since 2009.
According to QuantEco Research, a good kharif output, along with an increase in prices of oilseeds and pulses will help quicken recovery in the rural economy as the harvest season begins late September while keeping a lid on food price escalation. The Q1FY22 above long-term average growth in agriculture sector at 4.5% despite the rural economy grappling with the devastating second covid wave underscores the cushion from record rabi output and government procurement, it said.
It added that late monsoon revival in September may augur well for soil moisture/reservoir levels and in turn Rabi crop sowing, but a late withdrawal or unseasonal rains extending into early October may be more damaging.
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