New Delhi, Oct 13: The myth surrounding the infallibility of fast-moving consumer good stocks seems to have exploded. Hitherto referred to as `defensive' stocks, FMCG scrips have finally fallen prey to bear operators. Consider this. Tobacco major ITC has shed over 20 per cent in the last one month, while personal care major P&G has slipped by more than 22 per cent during the same period. ISPL is down 13 per cent, while eyecare manufacturer Bausch & Lomb has lost over 35 per cent. This, at a time when the bullish fervour in the market has seen the Sensex cross the psychologically important level of 5000 points. Clearly, this shows that FMCG stocks are as exposed to the vagaries of the market as most other stocks.In fact, this is the first time that one leg of the much-fancied troika of IT, pharma and FMCG stocks has moved contrary to the market trend. During the May-June rally, although the infotech sector did not join the bull party, it did not move against the tide either. On the other hand, the FMCG stocks are decisively bucking the trend now. And, the reason for the hammering in these counters is the expectation of lower levels of earnings growth. With the sole exception of Hindustan Lever, say marketmen, all FMCG companies (especially the multinationals) are expected to post either a flat or a modest growth. Increased competition has taken a toll of most FMCG companies. A section of the market also feels that punters have switched from FMCG to economy stocks in anticipation of much higher returns. Besides, with the IT sector turning up a spectacular performance in the second-quarter, this leg of the troika is now the first preference of investors.
It's sheer coincidence that the worst hit FMCG counters are multinational companies. Indian companies have, so far, managed to hold on to gains and in some cases, have seen a fresh spurt in prices. For example, while HLL has fallen by 5.6 per cent from Rs 2696 to Rs 2485 in the past few weeks, Nirma has risen by a whopping 50 per cent to Rs 793 from Rs 529 during the same period. Similarly, Tata Tea has rallied by around 17 per cent from Rs 548 to Rs 640. The reasons for the rise in the share prices of Indian FMCGs have more to do with company-specific development rather than improved earnings. For instance, in Nirma, earnings is expected to grow at a much faster rate, thanks to a new plant going on-stream. In Tata Tea, it's rumours of a deal with Tetley of UK.
Cadbury and arch-rival Nestle have fallen by 10.31 per cent and 4.4 per cent respectively. While the former is trading at Rs 791, down from Rs 882, the latter has dropped from Rs 654 to Rs 625. Reckitt & Coleman has lost around 10 per cent to Rs 405, while Britannia has dipped further from its ex-bonus level of Rs 1087. The sole exception among the multinational FMCG companies is Smithkline Beecham Consumer, which has from Rs 638 to Rs 695 mainly to better-than expected results.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.