ICICI Securities Recommends 7 Stocks From FMCG Sector

ICICI Securities has given a "buy" rating to seven stocks from fast moving consumer goods (FMCG) space. The stock broking firm said, "We find it intriguing, that the FMCG companies typically speak about normal monsoons likely driving demand improvement."

ICICI Securities cites reasons for its views on FMCG stocks:

1) Rural India's reliance on agriculture (as a corollary to monsoon) has declined over the years (at least 35% of rural income is non-farm based while reliance on irrigation has consistently increased to 48% of arable land in FY2022 vs 36% in FY2000. This has likely minimized the impact of minor droughts on foodgrain production.

2) On the other hand, discretionary demand is more linked to monsoon and agri-GDP, strong monsoon rainfall generally bodes well for tractor and 2W / 4W demand).

3) As per the broking firm, consumer sector overvaluation in May'23 was at 27% (per I-Sec Consumer Momentum Indicator (ICMI)) versus 22% in Dec'22. Though Staples' demand environment continues to be (relatively) muted, there has been sequential improvement in demand (especially in rural) over the quarters in FY23.

4) Moderation in raw material prices and cooling of inflationary pressure (CPI) for consumers is likely to drive further improvement in demand. Input cost moderation has also led to the recovery in margins for most FMCG companies, though most companies have highlighted the need for increased investment (ad-spends) towards driving consumer demand which should limit any material operating margin expansion.

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ICICI Securities has given a "buy" rating to 7 stocks with a target price of 10% to 20% above the current market price. The brokerage firm believes that these stocks are undervalued and have the potential to appreciate in the long term.

"We continue to prefer businesses that are executing better (HUL, Nestle, Jyothy, Godrej Consumer, and Britannia) or those with industry tailwinds/potential turnarounds (Kalyan, JUBI)", it added.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the author or the brokerage house will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.