GOLDEN RULES FOR TRADING

FMCG Stocks Outlook for the week – 20 to 22.10.2014

FMCG Stocks Outlook for the week – 20 to 22.10.2014

We believe that stocks of fast moving consumer goods companies are likely to stay
range-bound in the week ahead as investors will focus on results of other leading
companies scheduled to report earnings next week. The market will focus on HDFC,
Kotak and Wipro. Action in the FMCG space will start only after Hindustan Unilever
comes out with its numbers. Hindustan Unilever, India's largest fast moving
consumer goods company, is scheduled to announce its Jul-Sep earnings on Oct 27.

We think that while FMCG companies will benefit from lower crude oil prices, the
near-term trigger for most stocks will be their Jul-Sep earnings. Ideally, with lower
crude prices and falling inflation, FMCG stocks should have been on a tear; but the
market will first react to Jul-Sep earnings. Only after that will investors buy into the
best performing stocks.

We pointed out that lower crude prices will help FMCG players save on costs and
improve margins in the near term; but this could also lead to a price war if local
brands choose to pass on lower costs to customers by taking price cuts. As of now,
volume growth has not picked up. If volume growth remains Sluggish, then price
cuts are not too far away. Price cuts in the industry are usually initiated by smaller
regional players who have lower operating costs, and smaller production cycles,
giving them ability to make price adjustments faster.