NEW DELHI: Last one yr’s relative underperformance by the FMCG pack vis-a-vis Nifty50 might merely be the beginning of a multi-year sample. History has many examples to counsel so, Jefferies acknowledged in an in depth report.
Jefferies divided the ultimate 20 years into seven time phases the place shopper staples underperformed the NSE barometer in three time durations, particularly 2002-2003, 2004-2007 and April 2020 till date.
The most excellent durations of underperformance had been in the midst of the 2002-2007 (2002-2003 & 2004-2007), when Nifty50 soared six cases over the six-year interval in the direction of a two-times rise in shopper staples shares. This was the interval when India witnessed a strong investment-led monetary improvement.
Jefferies acknowledged if the financial system had been to see a sustained capex-led upturn, there is a precise hazard of FMCG underperforming the broader index over the approaching years.
“A common investor concern is the high valuation multiples (40-60 times ) that FMCG companies trade at , which could de-rate going forward. If we go back to periods of strong economic growth, the technical factor (investor preference for cyclical plays) can also drive outflows from staples and result in de-rating, which is evident from the long term PE premiums of FMCG pack vs Nifty,” it acknowledged.
Data confirmed Nifty50 delivered a compounded annual improvement cost (CAGR) of 34 per cent in the midst of the 2003-2007 interval, in distinction with a 14 per cent return given by the FMCG pack.
Calendar 2002 was the third yr of sub-par monsoon, which impacted FMCG demand, significantly in rural areas. But starting 2003, Indian financial system began to get nicely, led by a capex revival. Nifty, after seeing weak effectivity for 3 years, rebounded sharply, returning over 70 per cent in the midst of the yr in the direction of a 30 per cent rise inside the FMCG pack.
The interval of 2004-2007 was marked by strong cyclical upturn inside the Indian financial system, led by capex heavy sectors equal to precise property, capital objects, cement and so forth. Nifty returned 221 per cent on this 4-year interval, materially elevated than 93 per cent returned by shopper staples.
Current scenario
Since 2020, the FMCG pack has delivered 17 per cent return in the direction of Nifty’s 20 per cent.
Jefferies acknowledged Covid-19 created a critical monetary disruption in 2020, with imposition of a strict nationwide lockdown. While FMCG firms too had been impacted; the sector outperformed the Nifty in the midst of the preliminary interval of lockdown. “However, with a swift recovery in the economy, cyclical sectors made a strong comeback leading to FMCG underperforming,” it acknowledged.
“An expansionary budget in February 2021, strong cyclical recovery following the first wave of the pandemic in 2020 and global examples on similar lines have also capped returns in the FMCG sector to some extent. In addition, rising input prices along with increasing investor concerns on peaking margins have also been a deterrent,” it acknowledged.
Jefferies, nonetheless, recognized that absolute stock returns might nonetheless be healthful and company-specific drivers might have an effect on explicit particular person performances.
Giving the occasion of
, the brokerage acknowledged that 2004-2007 for the FMCG pack was just about completely led by HUL, which confronted rivals with P&G and weak amount improvement. Excluding HUL, the sector was an equal performer with some shares equal to Marico and even outperforming the Nifty50. This time spherical, was a beneficiary of Covid-19 lockdowns, whereas Marico seen a sharp turnaround after weak improvement before now few years, it well-known.
