FMCG stocks see surge in foreign investment in first half of March

Sovereign wealth fund GIC’s (Government of Singapore Investment Corporation) ₹3,664.1-crore purchase of 91.5 million shares of ITC, offloaded by British American Tobacco (bat) on the stock exchanges during the fortnight, contributed significantly to the numbers.

The surge of buying came in the face of the FMCG sector underperforming the broader Nifty 50 index and suggests that attractive valuations led to buying at lower levels.

While the Nifty fell-1.4% to 22,011.95 points in the first half of the month, the Nifty FMCG index fell -0.12% to 53,338.35 points. The price-earnings multiple of Nifty FMCG as on 15 March stood at 41.75 times against the five-year median of 41.97 times.

“FIIs are long-term investors and the correction in FMCG stocks afforded them a good opportunity to pick them up at attractive valuations,” said S.K. Joshi, ED, Khambatta Securities. While ITC Ltd, the company with the highest weight in Nifty FMCG, saw its share price rise, other biggies such as Hindustan Unilever Limited (HUL) and Nestle India Ltd saw their prices slide.

ITC’s share price rose to ₹421.25 apiece from ₹409.50 apiece from 1 March to 21 March, while HUL’s share price fell to ₹2,242.35 apiece from ₹2,409.70 apiece, and Nestle India Ltd’s share price decreased to ₹2,553.65 apiece from ₹2,601.45 apiece in the same period.

Looking ahead, analysts at Anand Rathi research expect a gradual uptick in FMCG company revenue, driven by a potential recovery in rural demand.

“Discretionaries in the premium portfolios should continue to do well. Margins are likely to improve for staples and discretionaries, aided by favourable input prices (primarily due to steady crude-oil prices). Competition, though, is expected to be intense across staples and discretionaries, on aggression by smaller companies in FMCG and existing/new entrants in paints/beers,” according to an Anand Rathi report. 

The report projects a 13% compounded annual growth rate (CAGR) in earnings for FMCG companies over the next three fiscal years (FY24-FY26). it recommended focusing on “reasonably valued stocks with steady growth assurance” and highlighted HUL, Godrej Consumer, Zydus Wellness, Emami, and United Breweries as preferred investment picks within the FMCG and consumer discretionary sectors.

Foreign investment also flowed into other sectors, with telecommunications attracting ₹6,648 crore, financial services ₹5,365 crore, services ₹4,697 crore, consumer services ₹4,117 crore, and realty ₹4,031 crore. Other sectors that saw high foreign investment inflow were automobile and auto components ( ₹3,697 crore), capital goods ( ₹2,838 crore), construction ( ₹633 crore), and metals & mining ( ₹275 crore), according to data from NSDL.

However, foreign investors were net sellers in some sectors, including healthcare ( ₹1,577 crore), oil, gas & consumable fuels ( ₹1,110 crore), information technology ( ₹1,104 crore), construction materials ( ₹271 crore), and consumer durables ( ₹167 crore).

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Published: 21 Mar 2024, 08:25 PM IST