Consumer goods firms lose heft

Their weighting on the benchmark Nifty50 has fallen to 15%, an 11-year low

Consumer goods companies continue to lose out to other sectors on the bourses, with the combined weighting of automobile companies and fast-moving consumer goods (FMCG) firms in the Nifty50 hitting an 11-year low.

Their weighting has decreased to 15.3 per cent from 18.7 per cent three years ago and from a high of 24.1 per cent in 2016.

Automobile manufacturers such as Maruti Suzuki, Bajaj Auto, Hero Motocorp, and Eicher Motors have been hit the most as investors have turned to other sectors in search of better returns.

The country’s top six automakers that are part of the Nifty50 have a combined weighting of just 4.5 per cent now, the lowest since at least 2009. The sector’s weighting on the index has more than halved in the last five years from 10.3 per cent in December 2017 and an all-time high of 11.9 per cent at the end of December 2016.

FMCG firms have fared relatively better, but they too have lost out to other sectors. FMCG majors such as Hindustan Unilever, ITC, Nestlé, Asian Paints, and Britannia now have 10.8 per cent weighting in the Nifty50, down from 11.5 per cent at the end of December 2019 and a high of 15 per cent at the end of December 2012.

The FMCG sector lost out despite a doubling in the number of FMCG companies in the index in the last three years. There are now six companies from the sector in the index, against three years ago — ITC, Hindustan Unilever and Asian Paints. As a result, the combined market capitalisation of the sector in the index has grown faster than the overall market cap of all index companies.

The combined market capitalisation of FMCG companies in the index has almost tripled from ~5.55 trillion at the end of December 2016 to ~16.2 trillion at present.

However, index weighting is calculated on the basis of a company’s free float (non-promoter shareholding) market capitalisation, rather than total market capitalisation. Here the sector suffered because of a poor show by ITC, which has the highest free float in the industry. ITC has no promoters and its entire shareholding is free float, unlike its peers, where promoters hold a majority of the shares.

Automakers, on the other hand, have lost due to a poor show by the companies on the bourses. The combined market capitalisation of the automakers has risen just 8.3 per cent in the last five years, against a 143 per cent rise in the combined market capitalisation of all Nifty50 companies. The automakers in the index now have a combined market capitalisation of ~6.47 trillion, against ~5.97 trillion at the end of December 2016.

According to analysts, the decline in consumer stocks on the bourses mirrors the decline in private consumption in the overall economy. “The private final consumption expenditure (PFCE), especially discretionary consumption, has taken a beating in recent years due to poor income growth and Covid-19. This has adversely affected the earnings and stock performance of consumer stocks,” says G Chokkalingam, founder and managing director of Equinomics Research & Advisory Services.

The share of PFCE in India’s gross domestic product (GDP) hit an eight-year low of 55.8 per cent in the June quarter.

The sales of passenger vehicles were down 9.3 per cent in financial year 2020-21 (FY21), while twowheeler sales were down 12.1 per cent last fiscal, according to data from the Society of Indian Automobile Manufacturers (SIAM). These sales figures include exports.

Other experts say the companies in sectors like metals and mining, and IT services have delivered better earnings growth in recent years, forcing investors to invest in those stocks and shift away from FMCG and auto stocks.