There is inflation at one door and rising costs at another. Whichever door a layman chooses, there is a price hike. It has become challenging for middle-class salaried professional to balance their desires and income. The economy is still not at its total capacity as the Ukraine-Russia war emerged just after the pandemic. News reports are hinting at more price hikes in FMCG products this year because what’s happening right now around the world will have after-effects for a substantial time.
Media reports have said that many FMCG companies are lowering their quantity filled in fixed denomination packs priced in a range of Rs 1-10 or even higher. This helps them keep the price point constant.
A Prabhudas Lilladher report said that H1FY23 would be challenging due to the twin impact of poor demand and high input cost inflation. The raw material basket has seen unprecedented inflation in palm oil (50% YoY), crude oil (20% QoQ), coffee, packaging and other inputs.
Jefferies analysts believe that big FMCG companies like Hindustan Unilever, Dabur and Nestle may likely see flattish operating profit margins. The brokerage house has cut their EPS estimates on the sector by 1-10%.
What Should You Do?
Make your big bets on FMCG blue chips so that your money is safe. The sector is suffering through external factors, which will fade eventually. Therefore, it’s an excellent opportunity to dive into stocks with a healthy balance sheet. For instance, HUL has generated cash from operations of Rs 4,101 crore in the six months ended September 2021 and had cash and liquid assets of Rs 6,381 crore as of September 30. This gives the company enough cash to make acquisitions.
What Lies Ahead?
The market is not stagnant. Companies could be suffering now, but it won’t stay like this permanently. Place your bets when the market is low and reap the profits in the future when the market makes its highs.