FMCG was one of the hardest hit spaces as prices of raw materials along with oil prices soared above the roof after the Ukraine-Russia war, the result of which was also witnessed in their Q1 FY23 results. The net income of Tata Consumers fell 4.66% (QoQ) to INR 255.25 crores in Q1 FY23 despite a 4.32% rise in revenue to INR 3,362.17 crores. The same story continued with Bajaj Consumer Care Ltd (NS:BACO) and Godrej Consumer Products Ltd. (NS:GOCP), both of which reported a 5.39% and 4.99% respective QoQ decline in net income despite an 11.91% and 7.24% respective jump in net revenue. Some FMCG counters have witnessed a jump in the net profit in the recently-concluded quarter, however, pressure on the margins was clearly visible.
On Friday, India reported its CPI (consumer price index) data for July 2022 which turned out to be slightly better than the broader expectations. While the broader consensus was around 6.78%, the actual CPI rose 6.71%, making July the third consecutive month of easing inflation. With the aggregate prices of goods and commodities taking a U-turn from a peak of 7.79% this year, demand for FMCG stocks is seeing an uptick today.
Today, the Nifty FMCG topped the chart of best performing sectoral indices, gaining 1.21% to 42,970 by 12:51 PM IST, and it is an inch away from the all-time high of 43,242.5. As food inflation is gradually coming down, a volume jump from these companies coupled with a toned down pressure on the margins is expected in this quarter which is probably luring investors to switch back to this defensive sector.
So which stocks are looking apt for a potential rally?
After scanning through various counters in this space, the most prominent one seems to be the chart of Godrej Consumer Products. The company has a market capitalization of INR 88,436 crores and its share price has given a clear breakout on the daily chart from a 1-month long consolidation zone. Today, the stock surged to the day’s high of INR 937.2, depicting a peak intraday gain of around 8.3%, backed by a volume of around 140.9K shares, which is around 68% higher than the 10-day average volume of 83.6K shares (recorded yesterday).
Image Description: Daily line chart of Godrej Consumer Products showing a range breakout
Image Source: Investing.com
Today’s high is the highest level since 20 January 2022. Although the stock has retraced considerably from the day’s high, the chart structure is still positive and the breakout is still valid. On the downside, the stock has decent support around INR 833 which is the lower range of the consolidation range.