Brokerages See FMCG Stocks Gaining with BJP’s Return to Power

With the BJP-led National Democratic Alliance (NDA) winning the recent general elections, brokerages believe the government will introduce more measures to boost consumer spending. This is expected to benefit fast-moving consumer goods (FMCG) companies, both in terms of demand and stock prices.

The BJP secured 240 seats on 4 June, while its allies got another 52 seats, achieving a clear majority in the 543-member Lok Sabha.

Analysts think the government’s focus on encouraging consumer spending, along with expected normal monsoons, will increase demand in the short term.

Before the elections, the market expected the government to focus on infrastructure, which also supports consumer spending over time. Emkay Securities noted that the current government’s majority would likely push it to prioritize pro-consumption initiatives, which will be good for the FMCG sector and its valuations.

In the past two years, FMCG growth mainly came from price increases due to high inflation, which hurt sales volume. This led to a slow and unstable period for FMCG companies, influenced by the government’s cautious policies and ongoing economic challenges. However, with inflation decreasing, consumer spending is expected to rise.

Emkay predicts high single-digit growth for the FMCG sector in FY25. They believe the sector’s value will increase due to improving company performance and favorable conditions. The upcoming Union Budget might further boost consumer spending.

Several factors support the positive outlook for the FMCG sector, including better economic indicators, a normal monsoon helping agriculture, and significant investments by FMCG companies in expanding their distribution networks.

Analysts also expect government schemes like Ujjwala, Jal Jeevan Mission, Swachh Bharat Abhiyan, and Housing for All to provide long-term benefits. In the last quarter, many FMCG companies mentioned plans to expand their distribution networks to improve their prospects.

This outlook aligns with findings from NielsenIQ, which reported that rural FMCG demand surpassed urban markets for the first time in 15 months in the March quarter, though urban consumers compensated with higher spending on packaged goods.

Positive Demand Outlook

In their March quarter earnings reports, several large FMCG companies expressed a positive outlook for the current fiscal year. For example, Britannia Industries aims for double-digit volume growth in FY25, while Dabur expects mid-to-high single-digit volume growth.

Analysts from Motilal Oswal Financial Services predict high single-digit value growth for FMCG in FY25 and FY26. FMCG stocks have risen since the election results.

They believe this rise in staple stocks is due not only to their “defensive sector” label but also to strong management comments after the fourth quarter. Motilal Oswal expects improved economic conditions and price cuts by companies to drive a rebound in FMCG volumes. With a prolonged slowdown in rural markets, the government might take more steps to boost volume growth. While they haven’t changed their volume growth assumptions yet, they acknowledge the potential for further increases.