FMCG Sector Stock Investment - Best in Times of Slowdown

The FMCG sector in India is one of the biggest in the world and growing at a scorching pace. In times of a global slowdown and recession (in some countries) the FMCG sector provides one of the best investment opportunities in India. This is one of the sectors which will be relatively less hit by the global economic slowdown. So good stock selection in this sector can gibve good returns even in bad times for the overall economy.

The Indian FMCG sector stocks have so far shown a lot of resiliance in the recent stock market meltdown. Most of the FMCG sector stocks have outperformed the Sensex this year and some stocks still have positive one year returns. So its a sector worth looking at and also considering some exposure to in these bad times.

The table below shows ten FMCG companies in India and their one year stock market performance along with their PE ratio and beta. The Indian FMCG sector stocks have a very low beta value which in itself indicates low volatility in these stocks. The study of these 10 stocks would also suggest how some have generate positive returns in this market meltdown. Please click on chart to see enlarged image.



Some stocks in the FMCG sector are trading at relatively high PE and can be avoided for now. They do need to come down somewhat to be in par with the overall market valuations. But downside might not be big as the FMCG stocks have been registering robust growth even in this enviornment.

Also while selecting a stock in the FMCG one need to look into several important factors such as:

• The kind of rural penetration the company products have. The higher the better.

• If most of the products of the company are high end face or bodycare products. These product companies can be avoided for now and companies with more basic day to day use products should be considered. Look at what is a necessity and avoid companies whose products might be more of a luxary.

• Comparison of the intersegment PE and also the PE of the company vs. its growth rate. So if a company has a PE of 20 but is growing at greater then 20% easily then its fine.

Another positive for most of these FMCG sector stocks is that they are debt free companies. This is always good and specially good in these times of volatile interest rate enviornment.

For investors eyeing the FMCG space, large domestic companies offer attractive growth prospects. These companies are outperforming their MNC peers and small Indian companies in the sector. But MNC's generally have a better profit margin then the local players.

Another stock which I have missed in the list of ten companies in the chart above is Nestle India Ltd. This is also a good company but trading at a relatively higher PE of 30. Tis stock is worth looking at if the stock prices do correct in the near future.


While there is no doubt that consumer spending in India will also be hit in the wake of this slowdown it will not be as high as the effect this slowdown will have on some other sectors. So if one really wants to invest in the stocks markets now he/she would be relatively better off investing in these FMCG companies then any other industry.

Best Stock Picks: stocks like ITC, Dabur and Gillette in the FMCG sector.

Caution: While the FMCG sector has not seen much correction in the stock market carnage it does not mean that it might not fall in the near future. A bear market can make good stocks fall to values which have no relation to their fundamentals or growth prospects. So even if one is investing small exposure is advised.