However, the BSE FMCG Index is outperforming the benchmarks, if we talk about the fall from their respective all-time highs. While the market’s benchmark Sensex is down 15 per cent from its all-time high, BSE’s FMCG index is down 13 per cent from its all-time high.
At present, many FMCG stocks are available at attractive valuations. With the Ukraine war coming to an end and inflation coming under control, these stocks are likely to see decent growth in the long term.
Deepak Jasani, Head of Retail Research, HDFC Securities, said FMCG stocks seem to have hit near-term lows, while commodity prices seem to be falling after a major uptrend.
Jasani, however, said a lot will depend on whether the fall in commodity prices continues or not. Also, if inflation does not come under control soon, there could be demand side issues for FMCG stocks, resulting in downtrading and pressure on margins.
“Consumer stocks are a great secular long-term game and the best time to buy into such names is usually when they face inflationary pressures. From where we stand now, these companies are back at their average margin levels. That was before, said Yasha Shah, Head of Equity Research, Samco Securities.
Shah, however, said that from a short-term perspective, inflation concerns would limit the upside from here. Despite lower valuations, they remain relatively expensive and it is likely that these stocks may continue to improve for some more time. So, while this space is a good one, investors should have a three- to five-year horizon and be selective while selecting stocks to invest, Shah said.
Increased inflation has eroded the volume and profitability prospects of the FMCG sector. Concerns over inflation will continue to impact performance and valuations in the short to medium term. However, a large part of it is included in the share prices of the sector.
Vincent Andrews, a research analyst at Geojit Financial Services, said easing of the war and soft commodity supply from the global market would be the key factors determining the performance of the FMCG sector.
Andrews said, “We are positive on the back of moderation in valuations, defensive nature of the business, stable cash flows, normal monsoon and management of products based on volume and price.
Santosh Meena, Head of Research, Swastika Investmart believes that post the correction, most FMCG stocks and other consumer names are trading below their three-year media P/E ratio.
Meena said, “High inflation and poor volume growth have led to de-rating of sectors. Markets can be extremely volatile due to factors such as geopolitical uncertainties, rate hikes, risk of deadlock, slow pace of global economic growth etc. went.” ,
“With inflation being so high and the RBI likely to raise interest rates, the companies that will benefit the most are those with no debt on their books and pricing to pass on any price inflation to the end consumer. Thus, FMCG stocks and other consumer names are a good bet during these turbulent times and have become attractive after the recent correction,” Meena said.
However, Meena said one thing investors should understand is that despite recent corrections, these stocks trade at a premium compared to other sectors; This is because of their debt-free position, cash-generating ability, increased visibility of long-term earnings and a lackluster premium in the Indian market.
Meena said HUL, Godrej Consumer, Dabur and Britannia look attractive after a meaningful recovery, while Tata Consumer and Marico may continue to outperform.
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of MintGenie.
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