Budget impact for FMCG sector

By | March 7, 2011

FMCG sector has been growing a healthy CAGR of 11% over the last decade on account of strong domestic consumption demand. It is also the 4th largest sector of Indian economy and has a market size of about Rs 130,000 Crore.  This article briefs you about the post budget impact on FMCG sector stocks. Hence, if you are an investor interested to put your money in the FMCG sector stocks, then read through this article to know about more!!

Post Budget announcements & Impact on FMCG sector Stocks

  • A proposal was made to increase the allocation of Bharat Nirman programme by another Rs 10,000 Crore to Rs 58,000 Crore. This will have a positive impact on the rural infrastructure development which consequently will boost the companies involved in driving rural Growth. Companies’ viz. HUL, Dabur, Nestle will be benefitted.
  • Remuneration was increased under the NREGA scheme. For Anganwadi workers the remuneration was increased from Rs 1500 per month to Rs 3000 per month. For Angandwadi helpers the remuneration was increased from Rs 750 per month to Rs 1500 per month. This will enhance the rural disposal income and will boost demand from the rural sector. Hence, FMCG companies which have substantial revenue from rural sector will be benefitted.
  • There were two proposals for the food processing industry. Government gave an approval to set up 15 mega Food Park in the fiscal year 2011-12.  The storage capacity augmentation by private entrepreneurs and warehousing corporations will be put in a fast track. This will help reducing the loss of food articles especially when the food processing industry is plagued by the losses on account of food storage.
  • On the taxation front, No amendments were proposed in central excise duty.  Though surcharge has been reduced from 7.5% to 5% the MAT has been increased from 18% to 18.5%. This means that the effective MAT rate will now be 20% instead of 19.3%. The custom duty was waived for the crude palm stearin which is the essential component in the manufacture of soap. This announcement will have a positive impact on the soap manufacture company viz. HUL, ITC etc.  The central excise duty on bamboo for agarbatti has been reduced from 30% to 10%. Also, the central excise duty for warehouse facilities on agriculture produce was waived. These will have a positive impact on the small scale industries. Hence, the FMCG companies in the small caps might show an upsurge in their stock prices.
  • Since there was no announcement relating to the roadmap for implementation of GST, Government might miss the April 20112 deadline.

Overall the budget has been positive for the FMCG sector especially when the FMCG sector is kneeling under surging input costs and high inflation.

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