FM lifts FMCG sentiments with budget drives

By reducing excise duty across the board, the finance minister has been able to address two issues concerning the FMCG sector. The measure will not only provide some relief to FMCG manufacturers facing price pressure, it will prove to be anti-inflationary as well. Inflation has been a worry for the government and industry.

Recovering from a phase of demand slowdown, the FMCG sector has been reeling under pressure of high input costs since the last one year. This loss was partly compensated by price hikes across various product categories. Excise duty reductions would provide some cushion to the industry and enable FMCG companies to protect their margins.

Besides 2% cut in excise on all manufactured goods, Mr Chidambaram has completely done away with excise duty on tea & coffee mixes and puffed rice. The latter is good news for beverage manufacturers like Hindustan Unilever and Tata Tea and their consumers.

The Budget also proposes an 8% excise duty reduction on specific packaging material used for soaps, detergents and toothpastes. This is likely to result in 2-3% cut in costs of these items of daily consumption. However, companies like Godrej Consumer Products and Henkel have stated that the impact is too marginal to be passed on to the end consumer.

Investors on the Street seem to have been only little pleased with the goodies offered by the FM for the sector. ET FMCG Index registered a modest gain of a percent to close at 3678.3 points on Friday. This, inspite of a 1.4% fall in the Sensex. Godrej Industries registered a rise of 5% while scrips of Hindustan Unilever and Lakshmi Energy & Foods gained by a little more than 3% each. Majority of the scrips in the index either closed a tad higher or negative for the day.

Excise duty on breakfast cereals and water purification devices has also been reduced from 16% to 8%. Companies like Kelloggs, Mohan Meakin, Bagrrys and Eureka Forbes have reason to cheer due to these duty cuts.

A slew of provisions made in favour of the farm sector and rural employment augur well for the FMCG industry. Companies like ITC having a rural well-networked procuring system ���e-chaupal��� can benefit from increased expenditure in agriculture and irrigation. Rural economic development will give a fillip to the rural marketing programmes run by most of FMCG companies.