ITC, Dabur, Godrej Consumer among top 6 FMCG picks by experts as demand outlook brightens

Positive management commentary on the FY25 demand outlook, driven by anticipated rural recovery, has brightened the prospects for the domestic FMCG sector, with experts suggesting several stocks from the space look poised for healthy growth in the medium term despite short-term volatility.

FMCG stocks have seen decent gains in recent times despite strong volatility. Considering the May 8 close, the Nifty FMCG index has climbed nearly 4 per cent since last month against a nearly 2 per cent loss in the equity benchmark Nifty 50.

Stocks such as Marico and Dabur have jumped over 10 per cent each over the last month, while shares of Godrej Consumer Products, Britannia Industries, United Breweries and United Spirits have jumped 5-4 per cent since last month.

After three consecutive sessions of gains, the Nifty FMCG index fell over a per cent in the morning trade on Thursday, May 9, on account of profit booking amid prevailing concerns over higher interest rates, sticky inflation and caution ahead of the general election outcome.

Sunny days ahead?

Experts remain optimistic about the FMCG space as they pin hopes on revival of rural demand.

"With the expectation of rural demand recovery and favourable seasons, FMCG industry volume growth will likely rebound in FY25E. Rural is likely to sustain recovery on a low base and improvement in seasonality, leading to overall consumption growth," said Emkay Global Financial Services.

Also Read: For FMCG, rural markets finally deliver some cheer

Abhishek Jain, the head of research at Arihant Capital observed that FMCG companies haven't released any groundbreaking financial reports recently. However, there's a lot of excitement surrounding a potential agri-sector revival. This positive outlook is driving some investors towards FMCG stocks.

"The hope is that a thriving agricultural sector will increase consumer spending in rural areas. This would benefit FMCG companies that sell everyday consumer goods to these regions. Adding to this, some value investors believe FMCG stocks might be undervalued and are finding them attractive for that reason as well," said Jain.

Also Read: Analysts positive on FMCG, IT and BFSI sector, here's why

What to buy from the FMCG sector?

Brokerage firm Emkay Global prefers Dabur, Honasa Consumer, ITC and Emami from the FMCG pack.

"We continue to favour Dabur (preferred rural play), Honasa Consumer (better execution prowess in BPC), ITC (better macro to aid segments), and Emami (enhanced seasonality to drive growth)," said Emkay.

Amit Goel, Co-Founder & Chief Global Strategist at Pace 360 prefers ITC and Emami over other FMCG companies.

"Both businesses are well-known brands, consistently produce high-quality goods, and offer a wide selection of products to cater to diverse customer needs. They are attractive investment options due to their low price-to-earnings (PE) ratios. Furthermore, they uphold excellent corporate governance standards, instilling confidence in investors," said Goel.

Also Read: India's consumer goods sector longs for a rural revival

Prashanth Tapse, Senior VP Research at Mehta Equities has a buy call on Godrej Consumer with a target price of ₹1,400 and a top loss of ₹1,280.

"We like Godrej Consumer which has reported better than expected financial results. Volume growth across Indian and Indonesian businesses is mainly led by category development and higher penetration. Overall the company has gained business through organic volume growth. The key highlights were a high focus on the rural segment and an improved international business model to aid margin growth in the quarter's earnings," said Tapse.

Tapse observed that on the technical front, Godrej Consumer stock had given a strong breakout above its all-time high mark of ₹1,314 on its daily and weekly charts.

"With the RSI (14) hovering around 71 and showing a minor uptick, the overall momentum appears robust. Trading volumes for the stock were nearly 8 times its average (30-day) traded volume, indicating significant interest," said Tapse.

Pravesh Gour, Senior Technical Analyst at Swastika Investmart recommends buying Godrej Consumer, ITC and Marico.

Gour pointed out that Godrej Consumer stock is coming out from a triangle pattern formation on the daily chart and the weekly chart, it witnessed a breakout of bullish flag formation with huge volume.

"The overall structure is bullish as it trades above its all-important moving averages. MACD (moving average convergence divergence) is supporting the current strength, whereas the momentum indicator RSI (relative strength index) is also positively poised," said Gour.

"An investor can take a position in Godrej Consumer with a stop loss of ₹1,220 for the target of ₹1,504 in the near term," Gour said.

For ITC, Gour observed that the stock recently experienced a breakout after a week-long consolidation, aiming to reclaim its important 200-day moving average (DMA).

"Technically, the initial resistance for ITC is anticipated to be around ₹446. Beyond this, the next resistance level is expected at ₹460. On the downside, the primary support lies at ₹430, where the 20 DMA is positioned, while the major support is 50-DMA comes at ₹420 level," Gour said.

"Marico has witnessed a breakout of a long consolidation with strong volume. The overall structure is bullish as it trades above its all-important moving averages. It created a strong base at 50-DMA, around ₹510. On the upside, ₹610 is an immediate resistance where it may see some pause, but above this, it will likely head towards ₹700+ levels. On the downside, ₹540 is major support at any correction at 200-DMA while ₹510 is the next critical support level. MACD and RSI are supporting the strength of the current movement," said Gour.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.