The Hindu Business Line : Not all defensive stocks were safe

It a well-known fact that defensive stocks from sectors such as fast-moving consumer goods and pharma tend to register lower declines in times of market turmoil. But do you know that only those defensives that did not run up in 2007 have held up in the recent correction?

Hindustan Unilever, Colgate Palmolive, Nestle India, GlaxoSmithKline Pharma and Lupin have actually managed positive returns or remained flat in 2008 and have been among the top performers in the recent fall.

These stocks were underperformers in the 2007 rally.

On the other hand, defensive stocks that did well last year have not fared as well in the 2008 meltdown. However, the theory that exposure to defensive sectors helps your portfolio has played out, with the overall performance of these sectors being better than the market.

Among the FMCG stocks that have corrected sharply this year were United Spirits and United Breweries. These stocks gave returns of 132 per cent and 66 per cent respectively in 2007.

United Spirits has fallen close to 60 per cent and United Breweries 66 per cent in 2008. Others such as Britannia (plus 35 per cent in 2007) Marico (31 per cent in 2007) and Tata Tea (plus 29 per cent) have also shed 19 per cent, 26 per cent and 34 per cent respectively in the correction this year. The overall fall in the BSE FMCG index has been 17 per cent this year, a figure that’s still much lower than the 44 per cent decline in the Sensex.

Stocks such as Hindustan Unilever (plus 9 per cent in 2008) and Colgate Palmolive (plus 5 per cent) have been the real defensive picks this year. These stocks were flat in 2007 with marginal returns of 1 per cent.

A similar trend is noticeable in the pharmaceutical space as well. The stock of Sun Pharma Advanced Research, Bilcare and Biocon that rose over 50 per cent last year lost all their gains in corrections this year. Divis Laboratories that rose over 200 per cent last year, has lost 38 per cent of the peak value so far. The stock of Cadila Healthcare, Cipla and Lupin, whose returns ranged between a negative 16 per cent to positive 2 per cent in 2007, have all seen moderate correction in prices this year.

Lupin Pharma, however, recorded 8 per cent increase in prices. GlaxoSmithKline Pharma was the only stock in BSE healthcare space that recorded negative return (11 per cent) in 2007 rally and reversed to post an increase of 5 per cent this year.

The stocks that generated exceptional returns in 2007 and still held their ground this year were Sun Pharma, Piramal Healthcare and Glenmark Pharma. The BSE healthcare index has fallen 26 per cent since January.

All this suggests that investors have taken opportunities to book profits even in defensive stocks, which delivered high returns in 2007.

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