Why FMCG stocks must be in your portfolio

Fast moving consumer goods (FMCG) sector has come under focus as Goods and Service Tax (GST) rollout is hardly a month away. The government aims to rollout new tax regime by July 1.

From quite some time now, with the rise in raw material cost, the FMCG have been passing the burden to customers. 

For instance, in home and personal care, price action was visible across categories. In soap, Hindustan Unilever took price hike of 2-7%: ‘Lifebuoy Total’ (+7%), ‘Pears’ (+3%) and ‘Dove’ (+2%). In detergents, P&G hiked price of ‘Tide Plus’ by ~4%. 

In hair oil, amid inflationary raw material pressures, Marico hiked prices of VAHO portfolio by ~8% and Emami took annual price hike of 4.5% for ‘7 Oils in 1’. 

ALSO READ: GST: Companies are most likely to fatten their profits than pass on benefit on lower tax to consumers

Despite all this, for the investors, FMCG have been a favourable sector. 

Speaking with Zeebiz, Amit Goenka, Analyst, Multibaggerstocks.co.in, said, "FMCG is rightly considered to be one of the most defensive sectors. During poor economic conditions or recession, consumers continue to buy items like toothpaste, detergents, soaps, etc. hence earnings are predictable, and stocks continue to hold value. During good times, FMCG sector also benefits from reducing poverty levels."

According to a report by Axis Direct, all the FMCG-major has lined up new product launches including Britannia Industries, Nestle India and Parag Milk Foods.

Despite being majorly hit by demonetisation, the FMCG shares managed to give positive returns to its investors. Here's a look:

If we look at the S&P BSE FMCG benchmark, in five years gave return of 101%. The benchmark which was trading at 5045.5 in mid-2012, is now trading at 10168.7, giving return of 101%. 

Britannia Industries, from December, 2016, the shares of the company has jumped by 21%. On December 6, 2016 the shares of the company were trading at Rs 2999.85 and today the shares closed at Rs 3619.70, giving return of 20.6%. 

Nestle India, in six months, the shares of the company have given returns of 7%. The shares of the company which were trading at Rs 6263.95 on December 6, 2016, has jumped to Rs 6679.20 today, giving return of 6.7%.

ITC Ltd, the shares of the company has given returns of 35% in six months. The shares of the company on December 6, 2016 were trading at Rs 230.25, and today it closed at Rs 311, giving returns of 35.07%. 

Hindustan Unilever, the shares of the company has given return of 30% in six months. On December 6, 2016, the shares of the company were trading at Rs 837.75 and today it ended at Rs 1092.80, giving return of 30.4%. 

Godrej Consumer Products, the shares of the company have given return of 25% in six months. On December 6, 2016 the shares of the company were trading at Rs 1462.9 and today it ended at Rs 1819.85, giving return of 24.6%. 

"Generally speaking, FMCG stocks rise at a slower rate during a bull run, but during a recession, they remain much steadier compared to most other sectors. So, good FMCG stocks rarely disappoint in the long run," Goenka added.

Moreover, Goenka shared the data of the last five years and performance of FMCG stocks. 

Going forward, with GST coming into effect, the outlook for FMCG companies looks brighter. 

ALSO READ: GST: A complete guide on products and services getting cheaper or expensive from July 1

GST Council, in its meet in Srinagar on May 18, 2017, decided on tax rates for 1,211 items. Around 43% of the 1211 items have been put in 18% GST slab which are bound to make things cheaper. 14% of the items have been brought under the 5% GST slab, 17% items in 12% tax slab, 43% items in 18% tax slabs and only 7% have been exempted from GST ambit.