FMCG sector is perceived as a defensive sector and safe haven for investment in turbulent times. The sector
is considered so due to the strong characteristics of the FMCG business that relies on domestic consumption.
The sector has outperformed the markets during most part of 2008 when the global equity markets were in
doldrums. This was even when the industry was suffering from cost pressure leading to margin squeeze. But
with the input cost inflation easing, we expect the companies to report better margin picture in the coming
quarters.
We expect rural markets to continue to witness buoyancy in the demand due to higher minimum support
price for farm produce, farm loan waiver scheme and the steep increase in the salaries of government
employees consequent to the implementation of the Sixth Pay Commission’s. This is likely to help maintain
the growth traction for FMCG companies
With the current run up in equities, the sectors that were beaten down in the slump have picked up
momentum, which made investment in FMCG unattractive. However, the markets have reached to a level
where the valuations don’t justify which makes us feel that FMCG stocks may outperform the markets in
case there is some sought of correction. Our top picks remain Godrej Consumer and Dabur