Turnaround in FMCG May Take A Few More Quarters
raw-material costs. The companies strove to cushion the impact on margins by calibrating their expenditure on advertising — ad spends equalled 5.1% of total revenue in the quarter, the lowest in four quarters.
Dabur, Asian Paints, Marico, Jyothy Laboratories and GlaxoSmithKline Consumer Healthcare outperformed the sector, while companies like Hindustan Unilever, Nestle, Colgate Palmolive and Godrej Consumer Products underperformed. Poor volume growth due to slower consumer demand hurt most of them. The outperformers benefited from factors rang-
Possibility of below normal monsoon poses a risk to the sector
ing from a low base to changes in product mix and uptick in demand in certain categories. Analysts don’t expect the situation to improve for threefour quarters more. According to a report from Standard Chartered Securities, demand for staples is unlikely to recover before FY16, as it lags GDP growth revival by three-four quarters. The possibility of below normal monsoon poses a risk to the sector as it could hurt agricultural production and increase input costs. Lower farm production will also depress rural incomes. The stunted growth in volumes has left limited room for price increases. These factors, besides high valuations, make the sector unattractive for investment in the near term.