Steady declines in several commodity prices in recent weeks and the prospect of improved margins in the coming quarters have spurred stocks of fast- moving consumer goods (FMCG) companies to their 52-week high, outperforming Sensex on Bombay Stock Exchange.

On Wednesday, ITC, Hindustan Unilever and Marico hit their peak in intra-day trading, while Colgate Palmolive and Dabur India inched towards their 52-week high, backed by expectations that their margins may improve following the fall in raw material prices.

The bullish sentiment in the market aided by continued recovery in glo-bal markets supported the rally in the FMCG sector.

With Sensex moving up 201 points to close at 18,693.86, the broader market continued to remain upbeat. But the FMCG index outperformed the market and hit a new 52-week high at 3,981.55 before ending at 3,972.89.

Marico, hair oil producer, zoomed to another all-time high of Rs 157, before closing at Rs 155.85 in a high volume trading session.

In the April-June quarter, the BSE FMCG index has gained 10 per cent compared with a nearly 4 per cent drop in Sensex.

Milind Sarawate, Marico group chief financial officer and chief HR officer, said, “Copra prices haven't come down for us. With palm oil prices softening some players such as HUL will benefit. Our margin continues to be stretched because of input cost pressures. However, there is sustained realisation that input costs will soften and FMCG companies are well-poised for growth.”

P Ganesh, executive vice president and company secretary of Godrej Consumer Products, however, said his company was yet to see any moderation in input costs. “We continue to face pressure on margins in some categories like soap,” said Ganesh.

Prices of copra, the kernel of coconut, have been for some months and Marico expects the prices to correct in the near term.

Even prices of palm oil, the main ingredient for making soaps, has fallen by nearly 18 per cent to Rs 45,700 a tonne in June from the three-year high of Rs 58,320 in February.

“We have seen declines in commodities prices in the past two weeks partly due to the fall in crude prices. We expect the decline to support FMCG stocks, which are rising due to their defensive nature. However, we don't expect much from June quarter results as the fall came just at the end of the on-going quarter. The second and third quarters will be positive for the sector,” said Sanjay Manyal, FMCG analyst at ICICI Securities.

Gaurang Kakkad of Religare Institutional Research said, “If this happens, the company may pass on some gains to end consumers so as to regain volume growth and accelerate uptrading from loose oil,” he said.

ITC, the largest cigarette maker, rose to an all-time high of Rs 199.75, topping the Rs 197.75 level recorded earlier this month. The scrip advanced 2.79 per cent over the day to close at Rs 199.25.

Brokerage Sharekhan believes that ITC, which generates most of its revenues from cigarettes, may see healthy growth going forward on a low base-rate effect.

“The company has indicated that things are back on track and expects cigarette sales volumes to improve after June. Also the low base effect of the first half of 2010-11will be seen going ahead. We expect about a 6 per cent volume growth for 2011-12,” said the brokerage in a note.

Hindustan Unilever ended 2.72 per cent higher at Rs 332.20 after seeing an all-time high of Rs 334.40 in intra-day trading.

However, not many analysts are positive on the scrip. “Hindustan Unilever focuses on volumes at the expense of profitability due to high competitive pressure from competitors. We are now witnessing a fall in margins. We expect the company to report muted earnings growth over the current and next year and maintain a ‘sell’ rating,” Shirish Pardeshi of Anand Rathi Financial Services said.

Colgate-Palmolive closed at Rs 987.50, closer to its all-time high of Rs 996 reached on November 9 last year. Dabur India closed at Rs 114.45, a whisker from its all-time high of Rs 122.

Kaustubh Pawaskar, research analyst at Sharekhan, said, “Input costs such as commodity prices and crude-linked derivatives may come down. It is expected that margins will be better in the second half. Margin pressures may ease out in the coming quarters. We might see some moderation in the volume growth. We have positive bias for ITC, and a buy rating for GCPL.”

Hemant Patel, research analyst at Enam Securities, said, “The cost pressures are there. Topline growth will be lower this calendar year than last year. As overall costs come down there will be a little margin expansion in the second half.”

(With inputs from Prasanna Deshpande in Mumbai)