FMCG Stocks Impacted by Slowdown

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

The downturn in the India growth story spares no one, not even the Sensex’s top performers. Consumer companies have been stock market darlings for close to five years. During this time, the BSE FMCG Index has risen by 227 percent to 6,948. When nothing else was performing, consumer (and pharma) stocks along with private banks seemed to be the best bets. As a result, valuations have sky-rocketed; the index trades at an earnings multiple of 41. Compare this to 14 for the Sensex and the disparity is stark. So now, as FMCG stocks get hit too, it is a grim affirmation of the slowdown.

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Private banks received a setback last month when the RBI tightened liquidity to protect the rupee. There are also initial signs that well-known consumer names are slipping. In the recent round of earnings, market leader Hindustan Unilever disappointed the street with a 7 percent top line growth. HUL said it has seen growth rates slipping since the first half of 2012. ITC also let the street down with its top line as cigarette volumes declined by 1-2 percent, according to brokerage estimates.

(This story appears in the 23 August, 2013 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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