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Shares of FMCG companies surge as investors look for bargains

Shares of FMCG companies surge as investors look for bargains
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First Published: Tue, Jan 08 2008. 12 17 AM IST

Updated: Tue, Jan 08 2008. 12 17 AM IST
Mumbai: An index of consumer goods scrips, a market laggard in 2007, closed at an all-time high of 2,504.45 points on Monday as bargain-hunting investors bought such shares. The index posted the highest gains among all indices on the Bombay Stock Exchange (BSE) and rose 3.3%.
In contrast, the bourse’s benchmark index, Sensex, went up 0.61% to close at 20,812.65 points.
Monday’s surge in the so-called FMCG (fast-moving consumer goods) Index followed gains made last week. On 2 January, the index had hit an all-time high of 2,437.9 in intra-day trades, closing later at 2,397. Before this, the FMCG Index had touched the highest ever record of 2,383 in May 2006.
Shares of tobacco giant ITC Ltd, which has around 50% weightage in the index, shot up 5.26% on Monday, while those of Hindustan Unilever Ltd and Nestle India Ltd were up 2.55% and 2.81%.
The FMCG Index, in fact, has given the second best returns in the first week of 2008. At 5.45%, it is only second to the Bankex index, which is leading all BSE indices with 5.92% returns. This is in contrast to the previous calendar year, where the FMCG sector fetched only 19.53% returns underperforming the Sensex, which expanded 45.51%. Moreover, of all the companies under FMCG Index, none managed to beat the Sensex between January and December 2007. Britannia Industries Ltd topped the FMCG earners’ list with a return of 34.5%.
“Growth in the FMCG sector tends to move in tandem with the growth in economy,” said Anand Shah, an analyst at Angel Broking Ltd, a Mumbai-based brokerage firm, adding profit growth at several Indian companies had outpaced the economic growth.
An analyst also said FMCG stocks are back in favour because a majority of other indices that performed well last year have now peaked out and investors will flock to “defensive” stocks that offer fair returns even in an economic downturn. “Last year, most of the sectors had outperformed except for FMCG. But now, with other sectors having been milched, investors are going back to defensive stocks since these stocks are better from a safety point of view,” said Sameer Deshmukh, an analyst at IL&FS Investsmart Securities Ltd.
Shares of ITC have risen 36.26% to Rs231.1 from Rs169.6 on 8 November. Concessions expected in the forthcoming Union Budget for businesses such as biscuits and packaged foods are also driving the ITC stock, said Unmesh Sharma, an analyst at Macquarie Securities. “These sops are likely to boost ITC’s business because it is ramping up its operations in these sectors,” he said. Between January and September 2007, FMCG companies’ sales grew to Rs29,508.5 crore, a growth of around 17% over the same period the previous year. The annual growth during January and September 2006 was more than 18%. Analysts expect a better performance in the index. “We expect the FMCG Index to touch 3,168 points in the next six to eight months,” said Manas Jaiswal, a technical analyst at Emkay Share and Stock Brokers Ltd.
sagar.m@livemint.com
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First Published: Tue, Jan 08 2008. 12 17 AM IST