Sector bets on FMCG, pharma pay off

Written by Chirag Madia | Mumbai | Updated: Dec 29 2011, 05:38am hrs
The Indian market has had a rough 2011 but those investors who had parked their savings in select mutual fund schemes have not been very disappointed.

Despite the fact that most equity schemes have delivered negative returns in the last one year, over a longer horizon, sector schemes have done reasonably well. For instance, schemes that invested in the fast moving consumer goods (FMCG), pharma and technology spaces continue to outperform the benchmark indices.

Over a three-year period the Sensex has gained 19.4%, while over the last five years, the bellwether index has risen some 3%.

Those who chose to play the consumption theme have been rewarded. FMCG funds have remained the top performers giving returns of around 37%, in three years and 16% in five years. Over the past year, these schemes have returned 14.4%. In three years, the BSE FMCG Fund Index has gained 29%. Pharma funds too havent done badly and have given returns of 33% in the last three year and 12% in five years. Meanwhile the BSE Healthcare index has risen 27%.

Sethuram Iyer, CIO at Daiwa MF says, The performance of the equity markets in the last two years has been satisfactory but with the Indian consumption story staying intact, sectors like pharma and FMCG have done better than the market. One reason for this is that these are defensive plays that investors prefer when the market is volatile.

In contrast, bets on infrastructure and banking funds have not paid off; in the last three years infrastructure funds have returned 12.36% though over the past year they have lost nearly 30%. The sector is expected to continue to fare poorly until the capex cycle turns and order flows improve. Moreover, the government would need to spend on large projects.

The banking space too has done badly over the past year, with schemes giving up around 30% but over a slightly longer horizon, the performance has been better.

In recent months concerns have related to rising non-performing assets. Ritesh Jain, head investments at Canara Robeco MF says, Banking stocks took a bit of beating with interest rates going up in the last one year. But now the major issue is the possibility of rising NPAs and this needs to be dealt with.

With the markets expected to remain somewhat weak for a while, fund managers suggest that investors should continue to invest in diversified equity funds. Given where the market is, we believe investors should come in through diversified equity funds or defensive sectors like FMCG and pharma schemes, said Iyer.