FMCG stocks buck the trend

Tue, 31 Aug 01:30 pm

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   Closing   

Persistent selling activity led the Indian markets to languish in the red during the previous two hours of trade. On the overall BSE, there are nearly 3.7 declines for every stock that has gained, indicating severe pessimism at the moment. Currently stocks from the FMCG seem to be the sole gainers, while those from the realty and oil & gas spaces are the worst hit. Stocks from the IT and healthcare spaces are trading marginally lower.

Currently, the BSE-Sensex is trading down by around 180 points (down 1%), while the NSE-Nifty is down by about 50 points (down 0.9%). Stocks from the mid and smallcap spaces are also seeing pressure as the BSE-Midcap and BSE-Smallcap indices are trading lower by 1.5% and 1.7% respectively. The rupee is trading at 47.04 to the US dollar.

FMCG stocks are trading firm led by Colgate and Dabur. As per a leading financial daily, HUL is repositioning its staples brand Annapurna on the health platform. The company is doing this through the fortification route. In fact the company has already launched a low sodium salt Annapurna Zinda Dil targeted at consumers with high blood pressure. This product is available in the top five metros and is seeing a good response.

In recent years, rival Marico has also taken the fortification route to extend its Saffola franchise into salt, atta mix, rice, oats, etc. While commodities is a low-margin business, with value addition like fortification companies can charge a premium. However, this premium is making this a niche segment. Moreover, it is becoming quite competitive with players like ITC, Tata, Future Group and Reliance also entering this segment.

Healthcare stocks are currently trading weak led by Lupin, Wockhardt and Cadila Healthcare. At the time of writing the stock of Dr. Reddy's was one of the few stocks from the BSE-100 Index that was trading firm. Gains in the stock are presumably on the back of news of Pharmac willing to fund a brand of 'Quetiapine' that is made by Dr. Reddy's. Pharmac is a drug funding arm of the New Zealand Government. It is reported that Pharmac will reduce the subsidy for Seroquel, which is a brand of the antipsychotic drug 'Quetiapine', from October this year. In its place, it will introduce the new brand of 'Quetiapine' which will be made by Dr. Reddy's. 'Seroquel' is made by AstraZeneca. As per a senior director of Pharmac, the new drug will be fully funded.

As per the management of Dr. Reddy's the company won the contracting funding. In addition, this move is likely to see a boost in revenues from the country. However, the market for this drug is quite small when compared to the US. It is believed that the market size for the same is about US$ 10 m (approximately Rs 470 m). While this is a positive development for the company, it will not have a significant impact on its earnings considering that the company's recorded revenues of Rs 70 bn during FY10.