Small BusinessFMCG: Shining, even without rain
Despite concerns about a less-than-normal rainfall, the BSE FMCG Index continues to outperform the market. Over the past month, the index has risen by 8 per cent whereas the BSE Sensex has lost 8 per cent. The monsoon does impact private consumtption, although to a much smaller extent than in the past. Also, it has been seen that in years of deficient rains, revenues of FMCG firms hardly grow.
- Sensex spurts over 100pts - Most active stocks on the BSE - Praj declines 3% despite in Q1 net rise - Sensex flat; IT index up 3% - Realty stocks bounce back - Sensex slips 151pts from day"s high
A fairly large share of the sales of FMCG firms comes from the hinterland and a weak monsoon could hurt their business though the impact could be far less severe than in past years because of the rural stimulus package provided by the government.
The Street is also probably hoping that the monsoon will pick up in the crucial month of July when most of the sowing is done. Also, it seems to be focusing on the June 2009 quarter numbers which are expected to be strong. Indeed, most FMCG firms are expected to see their operating profit margins expand in the June quarter which will be perhaps the first quarter when the full benefit of lower input costs will be felt.
Morgan Stanley estimates that for its universe of companies, the expansion in margins may be in the region of 130 basis points. Of course, a part of this would be due to strong double-digit revenue growth that most companies are expected to post, the possible exceptions being Tata Tea and ITC.
The top line, for most players, is likely to be driven by volumes rather than price increases — in fact companies have dropped prices and introduced products at lower price points in a bid to push sales.