Most of the major fast-moving consumer goods companies have reported their results for the first quarter of FY25. Ajit Mishra, SVP, Research at Religare Broking says that the overall outlook on the sector remains positive going ahead. 

For the overall equity markets, FMCG, alongside some stocks from the IT and the banking sectors, can be considered for investment, Mishra told Benzinga India.

With FMCG earnings almost drawing to a close, what is your opinion of the sector's earnings?

The FMCG sector’s earnings reveal resilience amid challenges. A pick-up in demand recovery, driven by urban consumption and some green shoots in rural demand, has buoyed revenues. The sector faced headwinds from the general election and heatwaves, impacting earnings.

Price hikes in response to inflationary pressures have supported margins, though raw material cost volatility remains a concern. Innovative product launches and an increased focus on e-commerce have further propelled growth. Overall, the sector showcases a decent performance.

What is your outlook for the sector for the coming quarter and what are some of your preferred stocks?

The FMCG sector is expected to continue its growth trajectory, albeit with some caution. Urban demand is likely to remain strong, and the signs of recovery in rural demand should become more pronounced, driven by government initiatives and a favourable monsoon.

Companies are expected to continue leveraging price hikes and cost efficiencies to manage margins despite persistent raw material cost volatility. Innovation in product offerings, premiumisation, and expanding digital channels will be critical growth drivers. Overall, the outlook is positive, with steady growth anticipated. Preferred stocks in the sector include HUL, ITC, and Jyothy Labs.

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What factors are likely to influence the sector this year?

Consumer demand trends, particularly in urban and rural areas, will be crucial, with rural recovery gaining importance. Inflationary pressures and raw material cost volatility will impact pricing and margins. Regulatory changes and government policies, especially those affecting taxation and consumer protection, could pose challenges. Additionally, competitive intensity and market dynamics will shape strategies. Technological advancements and the acceleration of e-commerce will drive innovation and distribution.

FMCG was largely the only winner in Budget 2024: What did you think about it and the budget at large and what is your outlook for the sector concerning the announcements made?

The Budget 2024 has introduced favourable policies and increased allocations toward rural development and infrastructure, significantly benefiting the FMCG sector. These measures are anticipated to boost consumption, especially in rural areas, driving growth for FMCG companies. Overall, the budget is growth-oriented, aiming to stimulate economic recovery. 

The outlook for the FMCG sector is positive, bolstered by budgetary announcements. Tax relief proposals for the middle class are expected to raise disposable income, enabling more discretionary spending. Additionally, the emphasis on the rural economy and job creation will drive consumption in non-metro markets. Increased rural spending and infrastructure development are set to spur demand.

What is your overarching view of the Indian stock market at present and which (if any) specific sector are you eyeing?

Currently, the Indian stock market exhibits a mix of optimism and caution. Economic indicators are showing a steady recovery, and there have been no negative surprises from the earnings front so far. However, global economic uncertainties and inflationary pressures pose challenges. Market sentiment is buoyed by strong retail participation and robust FII inflows. Despite this, investors are advised to remain vigilant due to potential volatility stemming from prevailing geopolitical tensions and the interest rate scenario.

We are particularly optimistic about the FMCG sector at this time. Favourable budgetary measures, a focus on rural development, and rising disposable incomes are expected to drive growth in this sector. Additionally, select stocks from the IT and banking sectors are also worth considering for investment.

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