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Informist, Friday, Jul 19, 2023

MUMBAI – Shares of fast-moving consumer goods companies are expected to take cues from the upcoming Union Budget next week, according to analysts. Apart from the Budget, investors will also eye the earnings of FMCG major ITC, which is set to report its June quarter numbers on Friday.

Investors see the Union Budget for 2024-25 (Apr-Mar) on Tuesday as critical for growth of the Indian economy and markets, since it is the first full-year Budget of the new government. If the Budget turns out to be a populist one, as widely expected, the stocks are likely to sustain the recent rally as current share prices have already priced in this factor, a research analyst with a large domestic brokerage said. 

FMCG stocks have been gaining for over a month as investors expect rural demand to pick up after the monsoon, which is likely to be above normal this time. In the Budget, the government may take some appropriate measures to increase incomes in the hands of people to boost mass discretionary spending, analysts say. This led to hope among investors that the current weak demand scenario could see a revival going forward, which also aided the recent rally in FMCG stocks. 

"The Budget should go a long way in doubling farmers' income by addressing incentives for fertilisers, more thrust on irrigation, food processing, logistics, and most importantly on research and development. The key expectations of farmers are export curbs such as the imposition of minimum export price, a quantitative limit on shipment, export duty; an outright ban tends to negatively impact farmers' incomes," Mehta Equities in a report said today.

However, if the Budget turns out to be a capital-expenditure focused one, it could trigger a sell-off in FMCG stocks, the research analyst said. The Union Budget remains a strong long-term trigger for FMCG stocks as the benefits of a good monsoon and a pickup in rural demand could only materialise in the March quarter, the analyst added.  

In terms of valuations, the analyst says the current expensive levels will continue going forward. "Even though the earnings can't catch up to current valuations, the strong retail and foreign institutional investor inflows into equities will keep the valuations stretched," the analyst said.

On the earnings front, HDFC Securities expects consumer stocks in its coverage to report revenue growth in mid-single-digits, driven by volume growth. The demand trend could have been much better, but for the extreme heatwaves which have severely impacted the ability of salespersons to deliver to trade partners, the brokerage wrote in a research report this week. "Moreover, due to cash-related restrictions owing to central elections, the offtake of the wholesale channel from distributors also took a hit," it added.

According to HDFC Securities, the gap between staples and discretionary consumption is decreasing. While staples consumption is seeing improvement, the discretionary segment is yet to see any meaningful recovery, which is under pressure due to weak macro sentiment and increased competitive intensity.

On the technical front, the Nifty FMCG index experienced a correction today as investors engaged in profit-booking across both large-cap and mid-cap stocks ahead of the upcoming Budget announcement, analysts said. "We are bullish on FMCG stocks and dips should be utilised to initiate fresh long positions. Next week will be a volatile one as we will witness pre- and post-Budget volatility," Vipin Kumar, senior technical and derivatives analyst at Globe Capital Market, said.

The analyst is positive on shares of Hindustan Unilever and Tata Consumer Products and suggests adding these counters on dips for a short- to medium-term perspective. HUL is trading at around its all-time highs after witnessing a breakout on weekly charts, and Kumar expects it to test 2,900-rupee-levels in the near term. Tata Consumer Products also witnessed a bullish breakout on weekly charts and the target is around 1,240 rupees, Kumar said. While Tata Consumer Products ended today's session 0.5% lower at 1,188 rupees, shares of HUL ended 0.4% lower at 2,727 rupees.

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

Reported by Noel John

Edited by Avishek Dutta

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