Stay the Course with Equities. Volatility isn’t the Time to Sell.
It is always a good idea to reflect on our thought processes in the past and see how valid they are as of today. In the first week of November we reviewed the status of FMCG index and concluded saying that the valuations appeared stretched at that point of time and could see a correction in the days to come. We also advised that if one were to hold any stocks out of this pack, stocks like Mcleod Russel, Marico, Colgate and Tata Global may be added to the portfolio.
When we review the CNX FMCG index in the last week of December 2013, the index has declined by 3.34% in the period beginning from November 1, 2013 and ending on December 26, 2013. As expressed by us, majority stocks in this pack have declined while only four stocks could manage to stay in positive range. With the exception of Jubilant Foodworks, all the other three stocks were shortlisted by us in the last review. Marico moved out of index when the index was reconstituted. Despite being dropped out of index this stock also rose in this period.
Mcleod Russel rose by an impressive 13%, while Marico and Colgate rose by 4.01% and 3.89% respectively. Nifty is close to the same level as it was on November 2. Tata Global is the only stock that defied our estimates and declined in the meantime.
Even though the overall sentiment in the market improved in the last two months, 10 stocks out of 15 stocks in this index have slipped. In fact, the leading seven stocks in terms of market capitalization have declined. This list included ITC, Hindustan Unilever, United spirits, Dabur, Godrej consumer products, United Breweries and GSK consumer. Despite the fall in large cap stocks, stocks shortlisted by Vivekam in November review have sought higher levels and supported the theory that value buying emerges at all times, albeit slow at times.
Going forward too, a similar trend may continue whereby stocks that are doing well and traded at a low multiple may attract buying while the stocks that are either not doing well or trading at a higher multiple might see some selling. With the mood of the market turning positive, the attention from FMCG stocks may be diverted to the other quality stocks that are growing but undervalued. Vivekam sincerely suggests investors to stay away from this sector for some more time. When the quarterly results of these companies are announced, a review will be undertaken by default and any change in perception will be announced.
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