FMCG counters: Bull run in frontline stocks like HUL, Nestle, Colgate, Marico ends?

For the past three years, FMCG stocks were the best investment bet for domestic, foreign funds. The BSE FMCG index has outperformed the broader index with a gain of over 138% against an 11% return for Sensex since January 2010.

However, a few analysts feel the bull run in these stocks is over due to the failure of raw material prices to soften further, overvaluation and competition. These stocks currently trade at 37.2 times 1-year forward P/E compared with their 3-year historical PE of about 35.

In a recent report, Ambit Cap has advised investors to sell frontline FMCG stocks like HUL, Nestle, Colgate and Marico. It has instead recommended discretionary consumer stocks such as TTK and Asian Paints.

“While we do not doubt the secular growth trend of Indian consumption story, the rising competitive intensity and saturating penetration in few product categories would adversely affect the earnings growth and valuations of FMCG firms” Ambit analysts Rakshit Ranjan, Shariq Merchant said in a report.