FMCG stocks see surge in FII buying in March first half

Foreign investors gorged on FMCG (fast-moving consumer goods) stocks in the first half of March, with net purchases touching a four-year high of ₹11,180 crore, according to data from National Securities Depository Ltd (NSDL). Comparatively, the figure was ₹662 crore in the same period last year.

Sovereign wealth fund GIC's (Government of Singapore Investment Corporation) ₹3,664.1-crore purchase of 91.5 million shares of ITC, offloaded by British American Tobacco (bat) on the stock exchanges during the fortnight, contributed significantly to the numbers. The surge of buying came in the face of the FMCG sector underperforming the broader Nifty 50 index and suggests that attractive valuations led to buying at lower levels.

While the Nifty fell-1.4% to 22,011.95 points in the first half of the month, the Nifty FMCG index fell -0.12% to 53,338.35 points. The price-earnings multiple of Nifty FMCG as on 15 March stood at 41.75 times against the five-year median of 41.97 times. “FIIs are long-term investors and the correction in FMCG stocks afforded them a good opportunity to pick them up at attractive valuations,” said S.K. Joshi, ED, Khambatta Securities. While ITC Ltd, the company with the highest weight in Nifty FMCG, saw its share price rise, other biggies such as Hindustan Unilever Limited (HUL) and Nestle India Ltd saw their prices slide.

ITC’s share price rose to ₹421.25 apiece from ₹409.50 apiece from 1 March to 21

March, while HUL’s share price fell to ₹2,242.35 apiece from ₹2,409.70 apiece, and Nestle India Ltd’s share price decreased to ₹2,553.65 apiece from ₹2,601.45 apiece in the same period. Looking ahead, analysts at Anand Rathi research expect a gradual uptick in FMCG company revenue, driven by a potential recovery in rural demand. “Discretionaries in the premium portfolios should continue to do well. Margins are likely to improve for staples and discretionaries, aided by favourable input prices (primarily due to steady crude-oil prices). Competition, though, is expected to be intense across staples and discretionaries, on aggression by smaller companies in FMCG and existing/new entrants in paints/beers,” according to an Anand Rathi report.

The report projects a 13% compounded annual growth rate (CAGR) in earnings for FMCG companies over the next three fiscal years (FY24-FY26).