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FMCG stocks in smart surge

The economy is in a slowdown and stock markets have only just started moving up in the wake of reform measures, but there has been a quite winner in the market: the fast moving consumer goods (FMCG) sector. Rachit Vats reports.

business Updated: Sep 17, 2012 01:18 IST
Rachit Vats

The economy is in a slowdown and stock markets have only just started moving up in the wake of reform measures, but there has been a quite winner in the market: the fast moving consumer goods (FMCG) sector. Shares in this sector have surged handsomely over the past year, beating other sectors and the overall benchmark indices.

The FMCG Index of the Bombay Stock Exchange(BSE) has surged 38% in the past year, while the benchmark Sensex has gained only 3.2%. Both Hindustan Unilever and Godrej Consumer Products have seen their shares rise by 55% in the past year, while ITC has jumped 35%.

Analysts say a strong performance in sales and profitability has aided the stocks, and also the fact that in a rocky market where sectors like infrastructure are not in fancy, the FMCG sector is considered a safe bet.http://www.hindustantimes.com/Images/Popup/2012/9/17_09_biz2.jpg

HUL's sales surged 14% to Rs. 22,116 crore in 2011-12, while Godrej Consumer Products' sales grew 33% to Rs. 4,866 crore, and ITC by 24% to Rs. 5,545 crore.

"In times of market weakness such as the one we are currently witnessing, investors prefer defensive sectors such as FMCG and pharma," said industry analyst V Srinivasan of Angel Broking.

A key factor is that after three years of double-digit inflation in food commodities such as sugar and milk that are raw materials, these firms have also raised prices. In a growing economy these have been absorbed.

"While discretionary consumption has slowed down the FMCG sector showed no such signs," said Abneesh Roy, equity analyst at Edelweiss Securities.

Srinivasan said FMCG firms had grown strongly in rural areas in an expanding economy.