FMCG Stocks: Consumer stocks are in the news due to rise in crude prices due to Russia-Ukraine war. After reaching several-year highs, crude also became costlier on March 9.
On the other hand, fast moving consumer goods (FMCG) companies have been directly hit by the increase in edible oil prices, as the consumer companies depend on palm oil for their soap business, whose total income is Rs. 20% share in sales. Shortage in supply of raw materials and high transportation costs will have an adverse effect on these companies.
Jeffries’ 3 Favorite FMCG Stocks
Explaining the outlook for consumer stocks and the impact of rising oil prices in the coming days, brokerage firm Jefferies India has cautioned against the risk of fall in earnings estimates of FMCG companies.
The broker prefers Godrej Consumer Products, HUL and Colgate among consumer companies.
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Price hike may have to be postponed
Jeffries said that due to inflation and slowdown in rural demand, India’s consumer industry may have to postpone higher price hikes.
The FMCG sector is also bearing the burden of high cost of agri commodities. It is clear that margins of almost all companies may take a hit.
Prices were increased several times in 2021
In 2021, the sector faced inflationary pressures, forcing companies to raise prices for consecutive quarters. Due to this, the demand in rural areas was reduced and there was sluggishness in urban markets.
The Russia-Ukraine war has started at a time when the sector was hoping for a revival, as agri commodity prices were largely stabilizing. Russia and Ukraine together are the largest producers and exporters of wheat and maize. Due to the sanctions of Western countries, exports from Russia have almost stopped, so the prices of these crops are skyrocketing.
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