Every budget is presented against the backdrop of certain macro-economic priorities for the government. One such priority this time is the need to boost consumption in the economy. The feverish and widespread speculation about Income Tax revision is all directed towards increasing some extra cash in the pockets of the common man so that demand rises.
Boost consumption, boost FMCG
Though overall demand growth will benefit a number of sectors the one sector that gains immediately is FMCG (fast Moving Consumer Goods), which faced constraints such as inflation, rising input costs, lukewarm demand especially from the rural population.
Therefore, FMCG stocks could significantly benefit from the budget on July 23.
Major FMCG stocks
Prominent FMCG majors such as Hindustan Unilever (HUL), Godrej Consumer Products, Dabur India, Nestle India, Marico Industries, Parle Products will be under watch.
Even veteran investment expert like Nilesh Shah, MD of Kotak Mutual Fund has said last week that he expects FMCG stocks which have good valuations right now can outperform the market if some additional cash comes in the pockets of the consumer after the budget. Shah said that he expected the sector to begin outperforming the market in the medium term.
Also automobiles, healthcare
Investment strategist and director, Wishlist Capital, Nilanjan Dey also pointed out that automobiles, consumer durables and healthcare could be other sectors to benefit if the FM puts additional cash in the pocket.
“FMCG stocks are surely one of the quickest to benefit. Benefits would also flow to the automobile sector where growth and lack of it simultaneously exist in certain pockets. Consumption has been robust in pharma and healthcare and can go up more,” Dey remarked.
Coalition government compulsions
One logic working in favour of FMCG stocks is partly political. This is the first budget of a coalition government under the leadership of Prime Minister Narendra Modi which could result in raising social sector investment.
If social sector expenditure of the government rises, it will most likely drive up consumption of FMCG items in the rural sector, where demand has been muted for some time, both due to inadequate monsoon and inflation.
Combination of factors
“The Union Budget 2024 is anticipated to introduce significant changes in taxation structure. Taxation changes aimed to simulate consumption are likely to also give a boost to volume growth which has been below potential… A push towards unlocking rural consumption, physical infrastructure and addressing farmer earnings, would really benefit the consumer sector,” Namit Puri, MD and senior partner of BCG has told the media.
FMCG stocks are certainly a sector to watch out for after the budget is presented on July 23. The logic: Finance Minister Nirmala Sitharaman needs to boost consumption in the economy. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
