FMCG stocks: Time to jump in if crude oil prices stay low

Last Updated : 12 August 2011 at 13:10 IST
With energy prices climbing and recession reportedly looming, the Western nations, that thrived on cheap oil is now finding it difficult to make both ends meet.

Research reports suggest that the recession of 2008 has altered consumption patterns in developed markets. Consumer spending in these markets has come down significantly.

But in growth markets, the scenario is different.

People in BRICS with their purchasing power supported by stable economies, are already living a new consumption scenario. Products like meat and other poultry commodities have gained currency and with oil prices coming down can witness further movement.

Needless to say, processed foods, and FMCG sector at large would thrive in this scenario.

“If Crude Oil prices remain low, stocks like ITC (BSE: ITC: 500875, NSE: ), Nestle India (BSE: NESTLE: 500790, NSE: NESTLEIND), Dabur(BSE: DABUR : 500096, NSE: DABUR) and even Marico(BSE: MARICO : 531642) can do better.” said Avinash Gorakshakar Research Head, Edelweiss.

[For information: Fundamentals and sell-offs withstanding, Nestle India stocks surged to 4177 on Thursday from a 4125 on Monday. ITC opened at 193.25 on Monday and reached 198.35 on Thursday.]

But a surge in oil prices can upset the apple-cart.

“Crude oil prices move in tandem with equity markets” says Renisha Chainani, Manager, Research Edelweiss.

“I expect the Crude Oil prices to maintain $85-$87 for the near term.” she added.

“But the equity markets have registered some gains lately.” Renisha pointed out.

So, if the crude oil prices can stay low for a while, then FMCG stocks would enhance performance.

As published in: http://www.commodityonline.com/news/FMCG-stocks-Time-to-jump-in-if-crude-oil-prices-stay-low-2011-08-12-41614-3-1.html