Sensex and Nifty return from the red; midcaps, smallcaps do well

The Nifty index concluded trading at 24,180.8, reflecting an increase of 0.65%. Throughout the day, the Nifty reached a peak of 24,492.6 and a low of 24,134.9. The Sensex fluctuated between 80,539.81 and 79,418.82, closing at 79,402.29, which represents a gain of 0.76%, amounting to 602.75 points above its opening price.

The Midcap index outperformed the Nifty 50, with the Nifty Midcap 50 closing up by 0.81%. Smallcap stocks surpassed the Nifty 50, as the Nifty Small Cap 100 ended at 17,847.9, marking an increase of 214.4 points, or 1.2%.

Nifty top gainers and losers 

The leading gainers in the Nifty index included Shriram Finance (up 5.39%), Adani Enterprises (up 3.91%), ICICI Bank (up 2.98%), Eicher Motors (up 2.81%), and Wipro (up 2.79%). Conversely, the top losers were Coal India (down 4.22%), Bajaj Auto (down 1.91%), Axis Bank (down 1.49%), Kotak Mahindra Bank (down 1.07%), and Hero Motocorp (down 0.91%). The Bank Nifty concluded at 50,787.45, having reached an intraday high of 51,589.15 and a low of 51,012.55. 

The top gainers in Sensex were: ICICI Bank (up 2.96%), Wipro (up 2.87%), Tata Steel (up 2.50%), Mahindra & Mahindra (up 2.36%), Sun Pharmaceutical Industries (up 2.28%). And the top losers were  Axis Bank (down 1.43%), Kotak Mahindra Bank (down 1.08%), Tech Mahindra (down 0.72%), HDFC Bank (down 0.48%), Maruti Suzuki India (down 0.12%).

October's worst performers

Indian FMCG stocks have been the worst performers in October, primarily due to a combination of factors that have adversely affected investor sentiment.

The poor performance in the September quarter has raised concerns among analysts and investors, as several leading FMCG companies reported results that fell short of expectations. This has led analysts to revise their target multiples downward.

Cautious commentary from various companies regarding their outlooks has added to the prevailing concerns. The slowdown in sales in urban India, coupled with a notable surge in commodity prices, has also weighed heavily on the industry.

As a result, the FMCG index has recorded a notable decline of 9.6% thus far this month, representing the largest monthly decrease in the past six years. At current levels, seven constituents of the index are trading 15% to 22% below their recent 52-week highs, with Tata Consumer Products leading this downturn.

Urban spending falls

Major FMCG companies such as HUL and Nestle have reported a disappointing set of numbers for the September quarter (Q2 FY25), with results falling below Street estimates. The heads of these companies have highlighted the significant impact of declining sales in urban India as a key factor behind their underperformance.

Urban areas are crucial for FMCG companies as they account for two-thirds of total sales, while rural areas contribute the remaining one-third, as per market experts.

Analysts note that urban consumers are becoming increasingly cautious with their spending, pressured by rising living costs and food inflation, both of which are eroding the purchasing power of the middle class.

For context, food inflation surged to 9.2% in September, up from 5.4% in July—its highest point in 13 months—driven by a sharp rise in vegetable prices along with notable increases in cereal and pulse prices.

Apart from the sluggish urban demand, the rise in commodity prices has also adversely impacted FMCG margins in Q2. The price of palm oil, a key raw material used in everything from food products to soaps, has been rising since March, weighing on consumer goods makers' margins.

For instance, ITC reported that the cost of raw materials as a percentage of sales climbed to 44.6%, amounting to ₹13,974 crore in the September quarter, up from 40.2%, or ₹11,320 crore, in the same period last year. This surge in raw material costs led to a 330-basis point decline in the company's operating profit margin.

Rural recovery

FMCG volumes in rural areas have been picking up pace since the March quarter and have sustained their momentum in the June and September quarters. However, during the same period, urban demand is shrinking, highlighting a growing divide between the two markets.

Analysts have pointed out that while social welfare programs provide some relief to rural Indians, it is the urban households that are left to fend for themselves. Urban Indians are further troubled by a sluggish job market and lower disposable incomes, making it increasingly difficult for them to maintain their standard of living.

Nestle India chairman Suresh Narayanan in his post-earnings commentary said, “The FMCG sector is facing sluggish demand with the growth in F&B declining to 1.5-2% as against double-digit some quarters ago. This decline is due to a combination of factors, including food inflation.”

(By arrangement with livemint.com)