FMCG stocks with high FII ownership at risk

FMCG companies with high foreign institutional investors (FIIs) ownership are in high risk mode now, reports CNBC-TV18’s Pragya Bhardwaj.

Also read: High FII holding in equity raises risk of Nifty freefall

FMCG has once been a very important sector. This sector has been holding up not only the largecaps like an ITC and Hindustan Unilever Ltd (HUL), but also some of these midcap names like Godrej Consumer Products, Titan Industries or even a Marico. They were holding up very smartly up until now.

Fundamentally speaking, things have started slowing down. A lot of negative commentary has been seen coming in from the managements of these largecap companies by way of slowdown in the staple segment. Discretionary segment wise Jubilant Foodworks reported something lower than its same-store guidance.

VIP Industries indicated that this will be a very challenging year for the company. Now there is a very high FII ownership as far as a lot of these stocks are concerned. In fact there was a Standard Chartered report on this which had indicated that the FII ownership currently in FMCG companies is sitting at an all time high. The analysis that has been done is that there are some of these names wherein the FII ownership as a percentage of the free float of the company is standing at over 70 percent.

So, the companies like a Jubilant Foodworks, Marico, Godrej Consumer Products, Dabur India have a very high FIIs percentage. Varinder Bansal indicated that fillers are starting to coming of negative sentiments in the consumer space and these are the companies that could be hit.

Apart from that another worrying trend is the fact that in some of these companies, the concentration of just top-5 FIIs funds is extremely high over 70 percent. So, those are stocks which are now trading almost at the same premiums as an ITC. Of course HUL has run up quite substantially.

So, valuations anyway are sitting at very expensive levels. Any marginal downtick activity could pull these stocks down. On a broad sector calls, brokerages are starting to downgrade this. Bank of America Merrill Lynch has downgraded the discretionary sector from market weight to an underweight. Now on all parameters these sectors are definitely trading at an all time high valuation multiples.