FMCG Stocks Outlook for the week – 23 to 27.11.2015
Positive
on 7th pay panel implementation
Stocks
of fast-moving consumer goods companies are expected to trade positive as
demand
is expected to pick up on the back of the likelihood that the Parliament will
pass
the
seventh pay commission's recommendations in the upcoming winter session. Demand
has
been a major concern for FMCG companies in the last few quarters as rural
demand
has
taken a hit. The implementation of the pay panel, if passed, will start from
next year.
Salaries
of 4.7 mln central government staffers and 5.2 mln pensioners including defence
personnel
will increase by 23.5% on an average, causing the spending power of these
consumers
to increase.
The
likely passage of goods and services tax bill in the winter session is also
expected to
have
a positive impact on FMCG stocks. A key catalyst that is likely to spur the
disposable
income growth, are the recommendations for the seventh pay commission. In
the
second half of the current year, FMCG companies would continue to benefit from
lower
commodity prices on a year-on-year basis. This low commodity pricing
environment
enables FMCG players to continue promotional activities to stir up
consumer
demand.
Despite
a rural slowdown, we are positive on the sector given expectations of a
volumeled
growth
recovery and improving margins in H2FY16 (Oct-Mar). Analysts also say that
volumes
of FMCG companies will see a steady improvement in Oct-Mar due to an uptick
in
urban demand, while rural demand will continue to remain weak in the second
half of
2015-16
(Apr-Mar). The Indian consumer industry "structurally remains highly
correlated
to the overall macro environment with revenue levels broadly tracking nominal
GDP
growth.
We
note that macro parameters are improving steadily (rising GDP growth,
moderating
inflation),
which should translate into higher consumer spend over the medium term.
Sustaining
the recovery in urban demand is crucial and it provides incremental comfort
on growth outlook