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FMCG stocks scale new highs despite high valuations in 2012

Investors continued to chase FMCG shares despite concerns that valuations did not justify the high stock prices. Even as the broader market picked up in the second half on hopes that economic reforms would gather steam, investors continued to lap up consumer goods stocks, betting on growing consumption theme.

December 28, 2012 / 09:56 PM IST
 
 
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Moneycontrol Bureau

Investors continued to chase FMCG shares despite concerns that valuations did not justify the high stock prices. Even as the broader market picked up in the second half on hopes that economic reforms would gather steam, investors continued to lap up consumer goods stocks, betting on growing consumption theme.

Godrej Consumer Products, for instance, is up 93 percent since Dec 30, 2011. Most of its peers, including Hindustan Unilever, ITC, Dabur, Marico, Nestle India, GlaxoSmithKline Consumer and Colgate Palmolive, are up 20-50 percent.

Stocks

Percentage Gain/Fall         (Dec 30, 2011-Dec 21, 2012)

Bajaj Corp

135

Godrej Consumer Products

93

Marico

51

Colgate Palmolive

50

GSK Consumer Healthcare

48

ITC

43

Hindustan Unilever

30

Dabur India

29

Nestle India

20

 

 

 

 

 

 

 

 

 

 

 

Is it still wise to invest in these stocks? Many analysts now warn that valuations are quite stretched post this year-long rally and so advise being selective.  ICICI Securities last week initiated coverage on several FMCG stocks.  It recommends a "buy" on Dabur, Marico and GSK Consumer and "add" on Nestle, Godrej Consumer and Colgate. However, it advises investors "reduce" HUL shares. ITC, Emami, Godrej Consumer and Marico are Edelweiss Securities' top picks.

According to Nomura estimates, the sector average is now 29.5 times FY14 expected P/E, much higher than the long-term average of around 24 times one-year forward earnings. It expect valuations to remain at the current elevated levels and believes that performance from these levels will be driven more by operating results than re-rating of sector multiples to higher levels.

Edelweiss says growing consumption from low-income families will drive growth. The brokerage citing an AC Nielsen survey says low income value explorer segment will increase FMCG sales by 50 percent in the next three years to USD 3.6 billion.

Also Read: A lackluster year for auto makers in 2012

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