Stocks

As defensive play, FMCG stocks catch FPIs’ fancy

NARAYANAN V Chennai | Updated on June 08, 2020

Despite lockdown effect, sector sees investment of ₹19,069 crore

Foreign portfolio investors (FPIs) are making record investments in the shares of companies producing household and personal products. According to latest data available with depositories, FPIs made a net investment of ₹19,069 crore in the sector during the first 45 days (between April 1 and May 15) of the current fiscal. This compares with the net outflow of ₹2,503 crore during the full fiscal 2019-20.

“Household and personal product stocks have always been considered a defensive bet, and are preferred by investors, particularly in a bear/volatile market,” said Ajit Mishra, VP-Research, Religare Broking.

The household and personal products category falls under the fast-moving consumer goods (FMCG) sector that has been relatively less hit by the pandemic, except for the logistics and supply chain challenges faced during the first phase of the nationwide lockdown. Some of the leading players in this space include Hindustan Unilever (HUL), Godrej Consumer Products, Dabur India, Nestle, Marico, and Britannia, among others.

“Further, in the Covid-19-led situation, companies in this category were least impacted by the lockdown. Even going forward, demand for these products would only increase in comparison to others, once things began to stabilise,” Mishra added.

A strong distribution network, resilience to make a bounce comeback, essential nature of the product portfolio and rising demand for personal hygiene and homecare products due to the growing awareness among consumers in the wake of the Covid-19 pandemic are some of the factors that are driving FPIs’ optimism towards this sector.

“The household and personal care segment (along with food and beverage) are seen as essentials, and hence, revenues are expected to be resilient even in the face of the pandemic,” Sunil Tirumalai, Head of Research, Emkay Global Financial Services, said.

“Most other sectors (both B2B and B2C) have seen severe impact on sales and profits. The household sector stands out, and hence, the stocks have done reasonably well,” he added.

The domestic equity market has been marked by volatility ever since the first nationwide lockdown was announced. According to a CARE Ratings study on sectoral movement of indices during Covid, which measured the performance of indices for 30 trading days pre and post lockdown, the FMCG index had climbed 14.1 per cent, compared to the performance of the broader Sensex.

The report also said that the sector has been relatively better placed as operations have been allowed throughout, given the supply of daily household goods being listed as an essential service.

Religare Broking’s Mishra said GlaxoSmithKline’s stake-sale in HUL could also have contributed to the spike in FPI investment in the sector.

“Last month, GlaxoSmithKline Plc (GSK) had sold its 5.7 per cent stake in HUL, which saw healthy buying interest from FPIs. We believe FPIs prefer to invest in a safe category with good growth prospects, and that could be the reason for a spike in investments in the household & personal products category,” Mishra added.

 

Published on June 08, 2020

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