In an interview with ET Now, Sanjay Manyal, Senior Research Analyst, ICIC Securities says that sales growth for FMCG companies will be volume driven than price.
ET Now: Will FMCG companies extend their hope rally?
Sanjay Manyal: FMCG stocks have been in the highlight because of a couple of reasons, first being that 2019 is an election year. It is similar to how in 2008-2009 there were loan waivers or when there was an extended spent on NREGA. Rural growth was really robust in 2009-10 and even for another consecutive two-three years.
Governments effort towards doubling farm income should start fetching results from this year on because it is an election year and government will be focussing on increasing rural income level and that percolates down to better growth for FMCG companies. And we are coming from a year which was dampened by demonetisation and introduction of GST, so the base has shifted lower. Rural growth would come back this year and we can see good volume growth across companies which are having higher contribution of rural sales.
ET Now: What are your top bets in the FMCG sector?
Sanjay Manyal: We are positive on the entire packaged food category because the penetration there is quite low and can see a consecutive two-three years of good growth in volume terms.
We remain positive on Nestle and ITCs FMCG business. We are also bullish on Marico as despite having nearly 80-90% increase in the prices it has managed its operating margins well.
ET Now: Do you think that topline growth for FMCG companies will come mainly from volume enhancement, rather than price hikes?
Sanjay Manyal: Most of the FMCG companies over the last three years are already sitting on elevated margins and their focus will be towards volume growth now. We are coming from a year which was impacted by a lot of headwinds like demonetisation and GST and therefore the volume growth was pretty low. Due to anti-profiteering clause most of the companies have passed on the benefits of GST after November 15 when government reduced the GST rate for many products and categories. Pricing will not be the growth driver for FMCG companies; it will be largely impacted by volume growth.