Explore how the FMCG space may shine as the prices of commodities are on a decline.
Over the last year, the BSE FMCG Index has been a star performer, offering an impressive return of 29.17% (as of 10th May 2023). On the other hand, the BSE Sensex has offered mediocre returns compared to the FMCG index, offering a mere 13.77% return (as of 10th May 2023).
With FMCG already on a roll, the icing on the cake is that the cost of raw materials is also becoming more favourable for the sector.
Let’s find out what it means for the FMCG space!
What’s Happening?
The global food inflation is on the rise in April 2023 compared to March 2023. However, it’s not all bad, as cereals and vegetable oils prices are declining. But, as we told you earlier, sugar prices have increased drastically due to a fall in estimated output.
Let’s talk about a real hero in this situation – Barley!
According to the data released by the FAO, this tiny grain has been grabbing all the attention lately, as it experienced a significant price drop. From trading at an all-time high of around Rs 3,000/Qtl in March 2022 to December 2022, it has fallen close to Rs 2,000/Qtl since the start of 2023 due to weak demand.
Now, you may be wondering why we are talking about Barley. Well, it is a key ingredient in manufacturing beer and Horlicks! With the considerable drop in barley prices, beer manufacturers and the acquisition company of Horlicks – HUL – can breathe a sigh of relief as their raw material costs will go down.
The price of crude oil is also on the decline. It reached $120 per barrel almost a year back and has dipped to $72.84 per barrel (as of 10th May 2023) due to the weakening global economy and recession fears.
According to a Moneycontrol report, Marico’s update shows that the price of liquid paraffin, used in non-sticky hair oils has dipped 9% from its FY2023 high, again a cost-saving point for the company.
What’s Next?
The tides are turning in favour of FMCG companies, and a decline in commodity prices is expected to benefit them in the long run.
The Moneycontrol report states that the FMCG players might have already secured supplies at higher prices; hence, the effect of declining prices should start to show up in the near future.
So, while the full extent of these cost savings may not be immediately visible, we can expect to see a trickle-down effect in the upcoming times.
The shift towards declining commodity prices is undoubtedly good news for FMCG companies.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned in the article are for information only. This is not investment advice.
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