The recent outperformance of shares of fast moving consumer goods companies indicates that investors have looked past the profitability challenges and are betting on India’s long-term consumption story.
Not only has the Nifty50, but the Nifty FMCG index also scaled a lifetime high. On a YTD basis, the sectoral index has outperformed Nifty50, with more than 21% gains and touched a
record high of 45,788.05 points on November 30.
If one looks at the individual stock performance, the outperformance has been largely led by the largecaps, which have added strong double-digit gains.
has been the star in the pack, with more than 55% gains, while sector bellwether has gained 14% year-to-date.
The recent cool-off in key raw material prices and early signs of a recovery in rural demand are the factors driving the rally in this pack.
But gains aren’t broad-based
Despite such a sharp run-up, most of the stocks are trading far from their lifetime highs. At least 13 FMCG stocks that are trading below their lifetime highs, touched some time late last year.
Moreover, the rebound in shares has not been broad-based, as most midcap stocks remained out of favour. On a YTD basis, stocks like
, , and have given negative returns.
One of the reasons for the same is that challenges on the profitability front have been more for these companies compared to the larger players due to unfavourable operating leverage conditions and adverse product mix.
According to Kranthi Bathini, an equity strategist at WealthMills Securities, one of the factors for the underperformance of the midcap stocks is the flow of foreign money into the sector.
Majority of the FII capital flows that Indian equities saw in the recent months were pumped into the largecap stocks across various sectors, Bathini said. “Also, if you are an investor sitting in New York and looking for investment options in India, you will not put your money into a stock like for eg. Emami, but in
,” he added.
Can 2023 be year for the FMCG pack?
Most market experts have held their bullish view on the sector and do expect 2023 to bode well for the sector in the backdrop of a recovery in rural consumption, cooling off inflation, and strong domestic growth.
“I think we will see some kind of recovery here, but it is going to be a slow grind. I do not think there is a runaway rally either in terms of the stocks or in terms of the performance, but maybe 2023 could be the year for this sector, where we will actually see 7-8% kind of volume growth in this sector,” Digant Haria, co-founder of GreenEdge Wealth Services told ET Now.
Some analysts also believe that the next leg of rally in indices will be led by the FMCG pack.
“We have been recommending the FMCG sector to the delivery-based traders. So, the FMCG counters are expected to lead in the next leg-up for the market,” said Gaurav Ratnaparkhi – head of technical research at Sharekhan by
.
and Hindustan Unilever are his preferred picks in this space.
Even for Ameya Ranadive, equity research analyst at Choice Broking, these two stocks are on the radar, and he sees the Nifty FMCG index testing 48,000 level in the near term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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