FMCG stocks zoom 12% in July

Nitin Mathur

New Delhi, July 17: Thanks to the good monsoons and defensive buying by operators, select FMCG stocks have gained up to 12 per cent during July. The top gainers during the period July 2-17 include scrips like Hindustan Lever, Reckitt & Benckise and ITC. Other stocks like Cadbury, Nestle, Gillette and Tata Tea have also improved during the past seven trading days.

According to a Delhi-based broker, “Operators are taking refuge with positions in defensive sectors like FMCGs while they are learning the tricks of trade in an all-cash market with smaller settlement cycles. Besides, the UTI fiasco has also spread nervousness in the markets.” Prospects of the FMCG sector seem to be bright as normal rainfall would increase disposable income, especially in rural India, the broker added. According to the data from Centre for Monitoring Indian Economy (CMIE), the agricultural sector is expected to grow at 9 per cent in the financial year 2001-02, as compared to a negative 4.6 per cent during the previous year. This is because almost 83 per cent of the country has received excess to normal rainfall during this season.

FMCG giant, Hindustan Lever was the biggest beneficiary of the rally with the scrip zooming 12.81 per cent from Rs 199 to Rs 224.5 between July 2-17. The company has a large consumer base in rural India and increase in their disposable income would have a positive effect on its financials. The stock was also buoyed by the e-commerce initiatives taken by the company.

Reckitt Benckise also improved 9.5 per cent since July 2, from Rs 163 to Rs 178.5. Break-up of the joint venture between the company and Nicholas Piramal on July 5, which marketed brands like Dettol and Disprin was received positively by the market.

Increasing costs were sighted as the main reason of the divorce. The scrip which was reeling at its 5-year-low has improved upto Rs 178.5 on July 17.

ITC was another company which gained due to prospects of higher earnings in the rural areas and defensive investment by certain operators. The tobacco giant gained 3.85 per cent during July 2-17 and 5.56 per cent during the past seven trading days. The scrip closed at Rs 786.9 as on July 17, as compared to Rs 757.75 at the end of the first trading day of this month.

Smithkline Beecham Consumer, Colgate Palmolive and Nirma also gained upto 4 per cent during the period on expectation of growth in their toplines. Certain FMCG stocks like Cadbury India, Nestle, Gillette and Tata Tea joined the rally only in the last week. While these stocks show losses till July 9, they have recorded impressive gains since July 9.