FMCG stocks up on price hikes

Thu, 26 Aug 01:30 pm

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The Indian indices have been trading moderately in the green, since opening in the morning. While IT and oil & gas stocks are seeing the maximum sell-off at the moment, FMCG and banking stocks are seeing some buying interest.

The BSE-Sensex is currently trading up by around 52 points (up 0.3%), while the NSE-Nifty is up by about 15 points. Mid and small cap stocks are also seeing some interest with the BSE-Midcap and BSE-Smallcap indices trading lower by 0.5% and 0.7% respectively. The rupee is trading at 46.83 to the US dollar.

Auto stocks are currently trading positive led by Escorts, and Ashok Leyland. According to a leading business daily Maruti Suzuki plans to set up a third plant at its Manesar unit. This will lead to an investment of Rs 17 bn and the plant will have an annual capacity of 250,000 units per year. Currently, the company is working on increasing the capacity of its second plant at the Manesar unit with similar investments and capacity additions. This second phase is expected to be operational by 2012.

The company's Manesar plant currently has an annual production capacity of 300,000 cars, while its Gurgaon plant produces 700,000 units per annum. Recently the company's CEO Shinzo Nakanishi stated that the Indian car market is likely to double to 5 m units by 2015. The company seems to be well on its way to meet the growing demand in order to maintain its market leadership position.

FMCG stocks are trading mixed with Camlin and Nirma trading firm while HUL and Paper Products are trading weak. As per a leading financial daily, after HUL, Marico has announced a price hike on its products. The company has announced price hikes of approximately 3% and 5% on Saffola and Parachute respectively. As per the company, increasing price trend in copra has necessitated the price increase in Parachute. However, the company has not increased the price of smaller or recruiter packs. The price increase in Saffola is actually a price correction as during the last financial year, the price of Saffola was brought down by 10% due to competitive pressure.

In fact even Godrej is considering a price hike or alternatively a grammage reduction in its brands due to the rising cost of palm oil. In may be recalled that two years ago HUL had increased its soap prices in response to input cost pressure. On the other hand Godrej had opted to hold on to its prices. The result was that Godrej managed to gain market share at HUL's expense. Under such circumstances Godrej's move will be watched closely by HUL.