Inflation is showing signs of moderation. The brokerage house says that if inflation continues to soften, then recovery will start in the FMCG sector from the second half of FY 2023.
FMCG Sector Outlook: The FMCG sector has been an underperformer for a long time. Due to Kovid 19, negative effect started on the sector, then rising inflation made the maths of the companies worse. Companies have to face higher input cost, especially due to higher prices of palm oil and crude. At present, there are signs of moderation in inflation. Brokerage house ICICI Securities says that if the moderation in inflation continues, the sector will start recovering from the second half of FY 2023. Volume is expected to improve. Companies which use less crude or palm oil in raw material, expect a quick recovery. Tata Consumer Products (TCPL), Dabur and Varun Beverages can give better returns in the coming days.
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pressure due to high inflation
According to brokerage house ICICI Securities, FMCG companies have been under pressure for the past few months due to high inflation. Some companies have increased prices by 10-15 per cent due to higher input cost. FMCG margins have come down by 200-500 bps during the last 2 quarters due to the price hike. Due to the sudden increase in prices, demand has also been affected, especially in rural areas. Consumers facing inflation have also switched to economy brand i.e. cheap products. However, in some categories like juices, carbonated drinks, the demand has been strong due to the heat.
signs of slowing inflation
Talking about the last quarter i.e. January to March, the revenue growth of FMCG companies has been flat to negative. The brokerage says that margin pressure will be seen in Q1FY23 as well. Commodity inflation is still high. However, there are still signs of softening in it. Commodity prices may further soften going forward. In such a situation, there may be volume recovery in the sector during H2FY23. Companies that are not heavily dependent on crude or palm oil are expected to grow better.
Which shares will get returns
Dabur
CMP: Rs 517
Target: Rs
Upside: 32%
Tata Consumer Products
CMP: Rs 729
Target: Rs
Upside: 25%
Varun Beverages
CMP: Rs 777
Target: Rs
Upside: 16%
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
