When it comes to long-term investments, selecting the right sector is crucial for ensuring both returns and portfolio stability. The debate between the Nifty IT and the Nifty FMCG indices has garnered considerable attention among industry experts, each offering distinct perspectives on which index presents a superior long-term investment opportunity. Although both indices have advantages, the ultimate decision hinges on an investor’s risk tolerance and financial objectives.
Before diving into expert opinions, it’s essential to examine the recent price trends of these indices.
In 2024, Nifty IT emerged as the stronger performer, gaining 22 per cent, compared to a 0.33 per cent drop seen in the Nifty FMCG. During the same period, the benchmark Nifty50 increased by 9 per cent.
However, over the last three years, the Nifty FMCG has delivered better returns, rising 51 per cent. Meanwhile, Nifty IT has grown by 12 per cent, outperforming the Nifty index, which has gained 36 per cent.
As market conditions evolve, industry experts continue to show a clear preference for the Information Technology (IT) sector over the Fast-Moving Consumer Goods (FMCG) sector.
The IT sector has proven to be a standout performer in 2024, driven by several key factors. The increasing demand for digital transformation, cloud computing, and cybersecurity solutions, coupled with the rapid rise of Generative AI, has significantly boosted growth.
Additionally, the strengthening of the US dollar and anticipated Federal Reserve rate cuts are further fueling the sector's expansion, making it a compelling investment choice.
Trivesh D, COO of Tradejini, expressed confidence in the IT sector, noting that if global economies continue to experience moderate growth and inflation concerns are addressed, IT stocks are likely to remain a strong pick.
"Furthermore, the sector's expansion into markets outside the US, particularly in Europe, Asia-Pacific, and the Middle East, provides additional diversification and reduces over-reliance on the US market, adding stability to the sector," he added.
Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, echoed similar sentiments, pointing out that the shift towards Generative AI and the rise of global digitalisation are expected to propel the IT sector forward, while easing global uncertainties and potential rate cuts from the Federal Reserve create favourable conditions for growth.
Divam Sharma, Founder and Fund Manager at Green Portfolio PMS, also focused on the IT sector’s potential for recovery, particularly following a shift in power dynamics in the US and strong dollar revenues. While Green Portfolio is not heavily invested in IT, Sharma acknowledges that the sector could rebound, especially with improved market conditions.
In contrast, the FMCG sector has faced a more turbulent 2024. Despite rising 15% by September, the sector slipped into negative territory by December, driven by weak demand, inflationary pressures, and rising raw material costs that have strained profit margins. The FMCG sector, traditionally seen as a safe bet during economic downturns due to the demand for essential goods, has been dealing with several headwinds, including slower rural demand and a decrease in consumer spending, particularly in urban areas.
Ajit Mishra of Religare Broking emphasised that FMCG companies are facing difficulties, with rising inflation and supply chain challenges limiting their growth potential. While rural demand shows signs of recovery, FMCG companies must navigate a tough environment in the short term, he said.
Anil Rego, Founder of Right Horizons PMS, highlighted the pressure on FMCG due to factors like weak urban demand, high competition from D2C brands, and rising input costs, though he also noted that FMCG companies will benefit from increasing rural demand as well as the ongoing shift towards premiumisation.
Sujit Modi, CIO of Share.Market, advised investors to consider their investment goals when choosing between IT and FMCG. He suggested that for long-term growth and stability, the IT sector presents a better opportunity. "Indian IT companies are well-established players in the global market, with strong order books and cash flows that offer reliable returns. Their valuation, which appears attractive at current levels, provides an opportunity for steady gains over time," saod Modi.
On the other hand, the FMCG sector, while offering stability, is likely to deliver more modest growth, according to him. FMCG stocks tend to provide regular dividends and are less volatile, making them a good choice for investors seeking low-risk, steady returns, he said, adding that with rising competition, inflation, and muted rural demand, the growth prospects for FMCG are more limited compared to the IT sector.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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