Moneycontrol Pro Panorama | HUL Q4 energy passes on to FMCG stocks

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HUL’s fourth fiscal quarter financial numbers seem to have come as a relief to the FMCG sector. Inflation has been a bugbear for quite some time now and was expected to eat into demand and earnings.

After HUL’s better-than-expected earnings, FMCG stocks are up. The BSE FMCG Index was up 1.8 percent at the time of writing. Of course, one reason could be that the sector was beaten down too much, thanks to the sharp rise in inflation. The spate of bad news continues; for example, Indonesia clarified yesterday that its palm oil export ban is quite broad and includes crude palm oil, too. But that doesn’t appear to be the case. In the last six months, the FMCG index is flattish compared to a 4 percent drop in the Sensex.

The other reason could be that investors believe that this too shall pass. While HUL’s management commentary did indicate that margins may have peaked for the near term, there would be still pockets of growth — in HUL’s own case, there is the example of premium products such as liquid detergents.

The rise in sales of premium products while overall volume growth was flat is emblematic of the K-shaped growth in the economy. Those who have money will spend even if large swathes of the economy are cutting down on consumption because of inflation.

Whether this population at the top of the pyramid can consume enough to sustain growth is another question altogether.

In any case, “HUL is perhaps best placed to deal with this situation in the FMCG industry and that may explain why investors are thinking they may have been more bearish than was needed,” writes my colleague Ravi Ananthanarayanan in his piece here.

Our research team also believes that these short-term headwinds offer an opportunity for accumulating shares. Read their analysis here.

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Ravi KrishnanMoneycontrol Pro