Weak monsoon could halt rally in FMCG stocks
A poor monsoon will hit FMCG companies as it will increase input costs for companies which could lead to lower margins and moreover increase inflation.
By Prashant Mahesh, ET Bureau | Updated:
The weak monsoon and drought like situation could halt the rally in FMCG stocks. A poor monsoon hits FMCG companies in two ways.
One, it increases input costs for companies which could lead to lower margins and secondly it increases inflation which leads to lower demand from consumers.
Rural consumption could be worse hit as farmer's purchasing power will reduce on a account of a poor monsoon. "A poor monsoon will slow down rural consumption and reduce the growth rate of FMCG companies," says Abhishek Jain, Head of Research, JHP Securities.
These fears are expressed on account of the rich valuations enjoyed by FMCG stocks and a sharp run in their stock price during the last one year. As per data from Value Research, Equity - FMCG funds universe has given a return of 30% versus the Nifty return of 5.42%.
Amongst individual stocks, HUL trades at a PE of 32, with the stock moving up from Rs 310 to Rs 490 over the last one year giving a 58% return. Similarly ITC trades at a PE of 33, and has moved up by 34% to Rs 267.
One, it increases input costs for companies which could lead to lower margins and secondly it increases inflation which leads to lower demand from consumers.
Rural consumption could be worse hit as farmer's purchasing power will reduce on a account of a poor monsoon. "A poor monsoon will slow down rural consumption and reduce the growth rate of FMCG companies," says Abhishek Jain, Head of Research, JHP Securities.
These fears are expressed on account of the rich valuations enjoyed by FMCG stocks and a sharp run in their stock price during the last one year. As per data from Value Research, Equity - FMCG funds universe has given a return of 30% versus the Nifty return of 5.42%.
Amongst individual stocks, HUL trades at a PE of 32, with the stock moving up from Rs 310 to Rs 490 over the last one year giving a 58% return. Similarly ITC trades at a PE of 33, and has moved up by 34% to Rs 267.
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