Synopsis
The short-term negative sentiments, created by the US Fed news, is expected to die down soon and the market focus will shift back to fundamentals and domestic factors like pace of vaccination drive, reopening by states, etc. However, it makes sense to take additional precautions in an expiry week.
Getty ImagesFinally, correction reaches the market: Since most technical indicators were on overbought zones, analysts were expecting a correction during the week and the US Federal Reserve meeting triggered it. Since economic recovery in the US has been better than expected, there is a fear that the US Fed may start attacking the inflation monster soon and the rates hike may follow within a year. The US Fed’s hawkish tone didn’t go down well with equity investors around the world and it was reflected in the Indian market as well. The Nifty ended last week with a loss of 116 points or 0.7%.
So how are things expected to shape up this week? “The immediate Nifty support of 15,450 was already achieved on intraday basis on 18 June. However, with a weekly loss, the weekly chart is still weak. So, I am expecting range bound behaviour and not expecting big moves before the F&O cycle expiry on 24 June,” says Sacchidanand Uttekar, Deputy VP, Trade Bulls Securities.
The short-term negative sentiments, created by the US Fed news, is expected to die down soon and the market focus will shift back to fundamentals and domestic factors like pace of vaccination drive, reopening by states, etc. However, it makes sense to take additional precautions in an expiry week. “We reiterate our advice of keeping a check on naked leveraged positions till the markets stabilise,” says Ajit Mishra, VP -Research, Religare Broking.
(Narendra Nathan/ET Bureau)
Sector update: Consumer staples Rural consumption story set for revival: Demand to accelerate for staples, hygiene and nutrition products
Rural markets account for about 36% of FMCG spends in India. Although rural consumption growth has outpaced urban over the past few quarters, its sustainability is being questioned due to: i) the severe effect of the second covid wave on rural areas—unlike the first wave; and ii) a clear shift in the Union budget towards infrastructure vis-a-vis rural.
Rural growth set to bounce back
Consumption growth in rural India in May outpaced the rate of expansion in cities over the past few quarters. This surge was underpinned by higher farm incomes, relatively less retail disruption during lockdowns and return of migrant workers to homes. Food and agriculture commodities’ inflation has seen a sharp 70% spike after remaining flat for five years. Further, global food prices have surpassed domestic food prices for the first time in six years. These trends can translate to higher income for farmers.
We expect rural growth to soon revive for FMCGs due to four factors: i) Most kirana outlets are now open, unlike the past couple of months. ii) Prediction of a good monsoon for a third year in a row. iii) Food inflation will ramp up farm incomes. iv) Continuation of rural stimulus programs (free ration scheme, MSP hikes, free vaccine, etc) in light of upcoming state elections.
In our view, five reasons dissipate concerns around the Budget’s adverse impact on rural growth of FMCGs: Reverse migration is on again, driving more consumers into rural India. This leads to more consumption of trusted brands. Government’s focus on infrastructure would lead to job creation (setting in motion higher urban-to-rural remittances) and higher GDP growth. On a two-year basis, budgetary allocations for different rural programmes remain healthy. Besides, higher outlay for infrastructure programmes will spur urban remittances and rural economic growth indirectly. State governments too play a major role in bankrolling rural support schemes. Rural per capita consumption of FMCG is about one-third of urban India. Companies are expanding direct reach in rural areas, apart from adding lower unit packs at price points of Rs 1, Rs 2, Rs 5 and Rs 10.
Select categories to do well
Discretionary, out-of-home and summer products were disrupted in April-June, but a y-o-y dip is unlikely. We expect demand to accelerate for staples (atta, pulses, coffee, tea), premium edible oil, health & hygiene, nutrition (chyawanprash, honey, health food drinks), naturals and packaged foods. Personal care products will see y-o-y growth on a soft base. Almost all other categories are reviving and will accelerate from the second quarter of 2021-22. From a near-term perspective, the best way to play this is through Nestle and Godrej Consumer (GCPL). From a 6–9 months’ perspective, we are adding HUL and Dabur to this list.
(Edelweiss)
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