Bulls on the rampage, tailwinds take FMCG, pharma to fresh highs

Contrary to investors’ perceptions, select stocks from defensive sectors, including fast-moving consumer goods ( FMCG) and pharmaceuticals, have been part of the current rally in the equity market. These stocks derive their name from their characteristics to protect investors’ principal when the economy slows and lag the broader market gains during an economic upturn. The sharp increase in prices of these stocks in the current rally, therefore, is phenomenal.

FMCG players, including HUL, Nestle India, Marico, Dabur, Britannia, GSK Consumer Healthcare, Procter & Gamble Hygiene & Healthcare and pharma stocks such as Sun Pharma, Lupin, Cipla, GSK Pharma and Ranbaxy are either scaling new highs or trading near their respective peaks for the past few trading sessions, in tandem with the surging broad benchmark indices.

A sharp drop in crude oil prices, slowing rate of inflation and downward trend in the interest rate cycle have created strong tailwinds for consumer goods companies, thus resulting in earnings upgrades. A strong rupee from the year ago levels has managed to keep the growth prospects of export-oriented pharma companies buoyant. These factors are ensuring that the investor interest stays alive in these stocks. Defensive sectors had earlier mirrored the market buoyancy in 2013 and in 2005. During each of these years, FMCG and pharma stocks rallied to new highs, along with the Sensex.