Rural sales, which account for more than half the revenues of consumer companies, were hit over the past few years due to weak wage growth, disruption after currency ban and introduction of Goods and Services Tax.
The stock market barometer for consumer staples, the BSE FMCG index, continued its upward climb for the third straight day on Wednesday to hit its lifetime high of 11,016.4 on Wednesday. The index gained 1.6% during the session, the most among sectoral indices, even as the Sensex ended 0.18% down and some sectoral indices like the BSE Consumer Durables index and BSE Bankex ended with losses of 0.87% and 1.18%, respectively. With Wednesday’s gain the index has gained 3.6% in last three days and 7.1% in April. Shares of fast moving consumer goods (FMCG) companies were buoyed by hopes of rural recovery after the India Meteorological Department forecast a normal monsoon for the third consecutive year.
While the heavy weight ITC gained 2.8% to hit a near two-and-a-half month high of Rs 275.30 on BSE, Nestle India and Godrej Consumer Products scaled to record their 52-week highs. Hindustan Unilever too rose 0.4% to hit its all-time high of Rs 1,451.35. With Wednesday’s gain, both Nestle India and Godrej Consumer Products have yielded a return of 14.6% and 13.2%, respectively, since the beginning of 2018, while the Sensex has returned a mere 0.8%. Among the major consumer staples stocks Godrej Consumer Products rallied the most on Wednesday, up 5.1%, while Dabur India gained 3.5% to hit a near 11-week high. Rural sales, which account for more than half the revenues of consumer companies, were hit over the past few years due to weak wage growth, disruption after currency ban and introduction of Goods and Services Tax.
Analysts at CLSA observed “Indian weather bureau’s forecast for normal monsoon rainfall—which if comes true will be a third straight year—will boost a recovery in rural parts, struggling with lower wages and demand for farm-loan waivers.” The brokerage expects a 15% rise in prices at which the government purchases produce from farmers, and expects this to boost rural incomes by $10 billion (about Rs 65,660 crore at current exchange rates). Notably, Skymet, a private weather forecasting agency, had also predicted normal rainfall in the upcoming monsoon season. According to CLSA, improving rural outlook is most positive for companies such as Emami, Dabur, HUL and Colgate-Palmolive as they have highest exposure to rural areas.
Crisil Research said, “A normal monsoon is crucial to push economic growth, which slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the Goods and Services Tax, both of which impacted private consumption demand as well as exports.” The benchmark Sensex snapped its nine days long run of gains to close at 34,331.68, down 63.38 points or 0.18% on Wednesday.