However, money managers and analysts see limited short-term upside for FMCG stocks due to high valuations but recommend existing investors hold them for the long term. “The current outperformance of FMCG stocks can be attributed to the strengthening rural economy and investors gravitating towards defensive stocks amid global uncertainties and high valuations in many other sectors,” said George Thomas, equity fund manager at Quantum AMC.
Stocks such as Godrej Consumer, Dabur India, Bajaj Consumer, Procter & Gamble, Hindustan Unilever, and Emami, among others, are expected to deliver returns between 5% and 10% over the next 12 months, according to Refinitiv analysts’ consensus estimates.
So far this year, the Nifty FMCG index has grown by 7.6%, compared to an 11.05% increase in the Nifty. Last year, the benchmark Nifty rose by 20.03%, while the FMCG index delivered a return of 29%.
Analysts said the risk-reward ratio in FMCG is more favourable compared to other market segments during periods of volatility.
“During the recent decline in the broader market, FMCG, which underperformed over the last year, began to look attractive compared to other sectors like industrials, cement, and other capex-heavy spaces,” said Sonam Udasi, fund manager at Tata AMC. “As a result, investors have preferred to stick to the tried-and-tested FMCG sector, even at 40-50 times multiples.”
A report by NielsenIQ indicated that rural consumption growth surpassed urban demand in the June quarter – the first in five quarters. However, this short-term rally has driven up valuations.
“Stocks like HUL, Dabur, Emami, and Godrej Consumer have delivered strong returns over the last 3-4 months and could see further upside over the medium-to-long term. We believe United Breweries and ITC currently offer healthy upside potential due to improving demand and a positive earnings outlook,” said Ajay Thakur, research analyst at Anand Rathi Institutional Equities.