The BSE FMCG index has fallen 4.5 per cent in the past one month and Morgan Stanley has downgraded the sector on concerns of rising competitive pressures and slowing revenue growth in an environment of high food inflation.

According to a Morgan Stanley report, multiple factors are triggering increase in competitive pressures. These include a rise in advertising and marketing expenditures, HUL’s further aggression on market share led growth, P&G’s potential focus on increasing its consumer base in India, slowdown in revenue growth and homegrown FMCG companies looking to expand their product portfolio.

It says a potential rise in competitive spending could manifest itself in price

cuts, increased levels of promotions and a sustained rise in ad spending, thus eroding industry’s operating margins.

When contacted, Dabur India CEO Sunil Duggal said, “Dabur India had hiked prices selectively in the first quarter of the current financial year. Going forward, we are not planning any revision in prices in the current quarter. The industry has, in the recent months, enjoyed the benefits of lower material costs and the same was ploughed back into the market in the form of high advertising and promotional spends. This would not have any impact on margins.”

A P&G spokesperson said that as per company policy P&G does not comment on future business plans or market changes. HUL did not respond to emailed questions sent by Financial Chronicle.

Among the FMCG stocks, Godrej Consumer has fallen by around 5 per cent in the last one month, Hindustan Unilever around 12 per cent, ITC and Marico around 3 per cent each and Tata Tea around 9 per cent. Colgate has risen by 2 per cent, while Dabur has been almost flat.

The PE ratio of the Morgan Stanley India Consumer index is down by 9 per cent since October 2009. The report has cited examples of how stocks and sectors have been de-rated with a potential rise in competitive pressures. These include the HUL-P&G laundry price war, Marico-HUL hair oil war, Britannia-ITC battle for biscuits, Colgate-HUL oral care share battle and the impact of price wars from new players on Bharti in the telecom sector.