Daily Voice | Anirudh Garg of Invasset PMS explains why he is not bullish on FMCG space for next couple of years

Anirudh Garg is the Partner & Head of Research at Invasset PMS

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26 Aug, 2025 12:21

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"We are not bullish on the FMCG (fast-moving consumer goods) space for the next couple of years," said Anirudh Garg, Partner & Head of Research at Invasset PMS, in an interview with Moneycontrol.

He feels the current market trend appears to be favouring "old economy" sectors, particularly those focused on value and stocks that benefit from capital expenditure (capex) or rising commodity prices, as long as inflation remains under control.

The Q2FY24 earnings season, which will end this week, offers a positive outlook for capex-oriented sectors like railways and infrastructure, along with other sectors experiencing significant YoY earnings growth, says Garg with over 15 years of experience in the stock market.

For Diwali 2023, if I had to pick two phataka (firecracker) stocks, I would strongly consider SJVN and Titagarh Rail Wagons.

SJVN: This company is engaged in hydroelectric power generation and transmission, and it has shown remarkable performance in the past. The Nathpa Jhakri power station, with a capacity of 1,500 MW, achieved its highest-ever single-day generation of 39.52 million units in the previous financial year. Additionally, SJVN has entered into collaborations, such as the MOU with Ocean Sun, Norway, for new technologies in the green and clean energy sector. With India's increasing demand for power and investments in power generation expected to rise significantly, SJVN appears well-positioned to benefit from this growth.

Titagarh Rail Wagons: Titagarh Rail Wagons has been making impressive strides, particularly in the railway sector. The company has been executing its wagon orders from the Indian Railways efficiently, achieving its highest-ever dispatch of 759 wagons in September. Furthermore, Titagarh's acquisition of Cimmco, an established player in the wagon segment, has strengthened its position in the Indian Railways' wagon tendering policy. Additionally, their acquisition of AFR, the largest French wagon maker, has expanded their design capabilities and geographical presence. The increase in FII and DII holdings demonstrates growing investor confidence in the company.

Both of these companies are aligned with key sectors of the Indian economy, including railways, defence, and power, and their strong performance and strategic initiatives make them attractive picks for Diwali 2023. However, as with any investment, it's essential to conduct thorough research and consider your investment goals and risk tolerance before making any decisions.

Companies like Zomato, Paytm, and PB Fintech are undeniably impressive, with commendable management teams that have successfully generated substantial employment and established strong market positions. We acknowledge their growth potential and positive trajectory.

Also read: Week ahead for primary market | 4 IPOs worth Rs 1,390 crore open for subscription

However, our investment philosophy places significant emphasis on relative growth, prompting us to assess their current valuations carefully. While we acknowledge their potential as great businesses, we believe that their current valuations may limit their near-term performance. Therefore, we are not currently committed to investing in these companies. Nevertheless, we continue to actively monitor them, and we may consider them as potential investment opportunities in our portfolio over the next 2 to 3 years.

Our strategy prioritizes diligent evaluation and prudent allocation of resources to deliver the best possible returns for our investors.

What's catching people's eyes is the change in its valuation. Just a year ago, it was valued at $1.2 billion, but now, with recent profits of Rs 14 crore in FY22, they are targeting a valuation over 1,000 times those profits. However, a concern arises from their extensive spending on advertising and marketing, involving nearly 4,000 influencers.

Although they've spent a lot, their Return on ad spend (ROAS) isn't as impressive as some competitors like Nykaa, which has a higher ROAS. The capital raised will go into more advertising, opening Mamaearth brand outlets, investing in Bhabani Blunt Hairdressing (BBlunt), and launching new salons. These factors raise questions about Mamaearth's valuation and future path in the market, making it an intriguing IPO to watch.

Also read: This investment analyst bets on pharma, speciality chemicals, finished metal goods

We are not bullish on the FMCG (Fast-Moving Consumer Goods) space for the next couple of years. The current market trend appears to be favouring "old economy" sectors, particularly those focused on value and stocks that benefit from capital expenditure (Capex) or rising commodity prices, as long as inflation remains under control.

Within the defensive sectors like IT, FMCG, and pharma, the belief is that the pharmaceutical sector (pharma) might take the lead, followed by FMCG and IT. It's worth noting that the recent performance of FMCG companies has not been very encouraging. However, companies catering to premium consumer demands are performing better and are expected to have higher growth rates compared to those serving basic consumption needs. Premiumization is anticipated to play a significant role in consumer preferences.

India is currently in the midst of a structural bull run, where the market corrections are often seen as short-term interruptions in an otherwise strong upward trend. The optimism is underpinned by a robust earnings season, reinforcing the expectation that markets are on the cusp of climbing above their previous highs. However, several short-term risk factors could challenge this upward momentum.

The intensifying Israel-Gaza conflict poses a serious concern, as escalating geopolitical tensions can trigger widespread investor caution, potentially leading to a ripple effect of selling across global markets. This could become more pronounced if Iran is drawn into the conflict, amplifying the risks. Concurrently, OPEC's move to reduce oil production has led to rising oil prices, igniting inflation worries and economic burden considerations.

Also read: Polls and beyond: Tracking the trend in Nifty, Bank Nifty as India gears up to vote

In the same vein, the increasing bond yields in 10-year US Bonds signal potential inflation and future interest rate increases, prompting investors to reconsider their portfolio strategies. Given the influential nature of the US economy on global markets, these changes can have a knock-on effect on the Indian market, tempering the previously confident market sentiment and possibly delaying the achievement of new market highs in the immediate future.

The Q2FY24 earnings season is broadly meeting consensus expectations, with notable sector-specific achievements. Notably, the capital goods sector, particularly railway stocks, is shining with remarkable YoY earnings growth driven by robust order books, consistent execution, and both domestic and international market demand. The government's record-high capital expenditure (capex) announcement is propelling earnings in railways and infrastructure. This focus on long-term investments is expected to drive higher earnings over the next two decades.

Public sector banks (PSU banks) have reported strong results, featuring increased revenues, reduced gross NPAs (non-performing assets) and net NPA rates, and a significant rise in net interest margins, reflecting solid growth and improved financial health.

In contrast, IT services companies had a comparatively weak Q2FY24 performance with a median revenue growth of just 1 percent QoQ. Private sector banks are steadily recovering, showing improved loan growth and asset quality.

The Q2FY24 results in the automobile sector have been promising, as most companies have exceeded brokerage firm EBITDA and PAT estimates. This positive trend can be attributed to lower commodity costs, a better product mix, favourable forex rates, and operating leverage.

In summary, the Q2FY24 earnings season offers a positive outlook for capex-oriented sectors like railways and infrastructure, along with other sectors experiencing significant YoY earnings growth. The consensus for Nifty earnings per share (EPS) in FY22 and FY23 remains stable, promising opportunities for investors.

In the latter part of FY24, mid-sized companies in engineering and capital expenditure-driven sectors are poised for resilience and potential outperformance compared to their larger counterparts. These midcap firms have thrived due to increased demand, while those heavily reliant on banking and financial services have faced challenges. The optimism surrounding revenue growth expectations for midcap firms between FY24 and FY26 is substantiated by strong order bookings, indicating a positive trajectory. In contrast, large-cap companies have seen diminishing growth expectations due to reduced guidance and uncertain demand conditions.

Midcaps' success can be attributed to their ability to secure substantial deals, often driven by clients seeking alternatives to larger players. Furthermore, domestic investments provide stability in a market susceptible to fluctuations in foreign institutional investments.

Additionally, the reduction in gross non-performing assets (GNPAs) of PSU banks has contributed significantly to their growth and has increased their net interest margins. Companies in the defence sector are securing significant orders and expanding their order books, while the railway sector is experiencing an uptick in order books, contributing to the positive outlook for midcap players.

With the capital goods sector expected to display robust earnings growth in FY24 and midcap companies currently undervalued, the latter part of FY24 holds promise for these firms as they navigate sector challenges, maintain strong order bookings, and thrive amidst favourable economic conditions.