Nifty FMCG Index hits a record high, crosses the 50,000 mark - What lies ahead

The FMCG Index has been a steady wealth creator for its shareholders. Barring the Global Financial Crisis year of 2008 and 2019, the index has given positive returns on an annual basis every year.

The FMCG index hit a 52-week low of 36,024 on June 17 last year. Since then, the index has gained over 13,000 points. More than half of that has come from ITC, which has contributed over 7,000 points to that recovery and subsequent surge. ITC commands a weightage of over 32 percent on the FMCG index.

Rural demand, which had been struggling due to inflation is seeing some signs of recovery according to companies. HUL CFO Ritesh Tiwari told reporters post the company's March quarter earnings that the rural slowdown is now bottoming out. "While rural volumes continue to decline, the quantum has come down," he had said.

FMCG, along with banks and IT account for nearly 60 percent of the overall market and they will have to participate for the market to hit new highs, Rahul Arora of Nirmal Bang told CNBC-TV18 on May 15.

India's rural economy generally tends to receive more attention in the form of sops ahead of an election. With India heading towards its general election in 2024, the focus is on whether the rural economy will receive any benefits.

Historically, six months before and after an election, the FMCG sector tends to do well, according to Pankaj Tibrewal of Kotak Mutual Fund. He said that the sector has shown resilience during the March quarter with gross margin recovery seen by most players.

Companies have also spoken about how stabilising input costs have aided an improvement in their margin.

"We are becoming more positive on the consumer theme. We believe that the consumer space has been hit hard on two fronts - demand and margin. However we believe these both are going to turn from now on. The raw material cost has already started coming off and that means improvement in EBITDA margins for most consumer companies. Secondly the rural demand after a very low base in FY23 is expected to bounce back now. So this is one sector where we are turning positive," Rajesh Kothari of AlfAccurate Advisors said on May 15.

The recent run-up in stocks has meant that most of these companies are now trading at a valuation higher than their 10-year average.

As a result of these valuations, some money managers are skeptical on the outlook of the FMCG companies as well.

"I think the bigger theme for the reduction would be FMCG and consumer. I think that's very richly valued. It's on the strength of low single-digit growth. These multiples, like the case of Asian Paints are underperforming, and so many others underperformed over the last couple of years, clearly indicates that money which is and has been moving out of those spaces," N Jayakumar of Prime Securities told CNBC-TV18 earlier this week.