Shares of fast-moving consumer goods (FMCG) companies were in high demand on Tuesday. The Nifty FMCG and S&P BSE FMCG indices rose nearly 2% each on bourses, as sales were expected to pick up on hopes of a recovery in rural demand.

Analysts said that normal monsoons, bumper harvests, and rising MSP would drive demand in the rural market in the near/medium term.

The Nifty FMCG (45,142) and S&P BSE FMCG (16,412) were up 1.9% each in intraday trade, while the benchmark Nifty50 and S&P BSE Sensex were up 0.5% each.

Dabur India, Hindustan Unilever (HUL), Marico and Godrej Consumer Products (GCPL) were up 2.5-6%, while ITC, Britannia Industries, Nestle India, Emami and Colgate-Palmolive (India) were up 1%-2%.

According to Pankaj Pandey, head of research at ICICI Equities, the food category will continue to grow faster as many FMCG companies venture into newer food categories such as juice drinks, dried fruits, soy products, protein products and nutritional products. These categories have been dominated by unorganised segments and unbranded products, creating high-growth opportunities, he said in a report.

Gross margins will improve sequentially as some commodity prices soften, analysts said. However, the prices of some commodities, such as crude oil, soda ash, milk, and wheat, remained high. Margin recovery is expected to be slow, given that most FMCG companies will be looking to increase spending on promotional benefits and support brands to focus on volume growth.

Meanwhile, Dabur India surged 6% among individual stocks to Rs 591.70 today. The stock was quoted near its 52-week high of Rs 602.50 on November 30, 2021.

Analysts at Prabhudas Lilladher expect Dabur India’s gross margin to improve from the third quarter of FY23 on lower inflation and calibrated price increases. After five quarters, rural demand continued to be impacted by higher product prices and lagged urban markets.

Meanwhile, regarding HUL, the brokerage said FMCG majors remain bullish on the sector given low penetration across multiple product categories and low per capita FMCG consumption ($46) compared to other developing countries.

HUL remains positive on growth due to low penetration of the rural population, 31% of consumption (69% of the population) and wide reach, growing affluence, wider premiumisation, favourable demographics, millennials and Gen Z, a portfolio spanning across price segments, to cater all categories of customers, continuous innovation, reinvention and new launches and higher growth and market share in future modern trade and e-commerce channels.