The fast-moving consumer goods (FMCG) stocks stole the show on Monday, rising in early deals in an otherwise volatile market. The Nifty FMCG index gained around 1.8 percent in intra-day deals, making it the top-performing index in today's trade.
Godrej Consumer was the top gainer in the sector, up 4.5 percent followed by Hindustan Unilever , Dabur and Britannia, which rose between 3-4 percent each. Meanwhile, Marico added 2.8 percent and Nestle and McDowell rose 1-2 percent.
Tata Consumer, Colgate, UBL and ITC were also in the green for the day. However, P&G, Varun Beverages and Radico Khaitan were the only 3 FMCG stocks in the red.
The Nifty FMCG index has outperformed the benchmark in 2022. It is down nearly 2 percent this year so far versus a 12 percent decline in the benchmark Nifty. Among constituents, while Varun Beverages and ITC have surged over 20 percent each in 2022 YTD, all the remaining FMCG stocks have given negative returns. Godrej Consumer, Emami, and Radico have shed over 20 percent each in 2022 so far while P&G, Nestle, Dabur, and United Spirits are down between 13-17 percent.
However, brokerages remain underweight on the sector as a whole on the back of low liquidity, higher inflation and poor consumer demand.
In a recent note, HDFC Securities stated that it has a 'buy' call in the FMCG space only on ITC, while maintaining reduce calls for HUL, Nestle, Britannia, and Emami. Meanwhile, it maintained 'add' recommendations on Dabur, Marico, Godrej Consumer, and Colgate.
However, brokerages have become highly positive on ITC. Brokerage firm Motilal Oswal Financial Services has upgraded the stock of ITC with a 'buy', pegging the target price of 335.
The brokerage firm said a better than expected demand recovery and a healthy margin outlook in cigarettes, healthy sales momentum in the FMCG business, lower drag from the Hotels business, and better capital allocation in recent years leads it to turn constructive on the stock.
A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. The brokerage firm expects this trend to continue and should result in improved cigarette volumes and earnings visibility over the medium term.
"We value ITC at 21 times FY24E EPS, representing a 65 percent premium to its global peer average. We believe the premium multiples are justified, given its strong visibility over the medium-term and the defensive nature of its business, especially in a volatile macro environment," the brokerage firm added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.