Key ratio signals FMCG could be the next cheerleader on D-Street

ET Intelligence Group: From Benjamin Graham to Peter Lynch, consumer stocks have been among the firm favourites of market mavens extolling the virtues of value investing. They are considered all-weather investments, with no problems of unsupportable debt on their balance sheets or inordinately long working capital cycles. Yet, they have trailed the broader markets of late.But history suggests that trend could reverse. The price ratio of the Nifty FMCG index and the Nifty has dropped to 2.5, a level at which the index for consumption stocks finds strong support. Usually, the ratio rebounds to 2.7-2.9 in the following three to seven months after it drops to the support level of 2.4-2.5. For instance, the price ratio slipped to 2.5 in May 2017 and rebounded to 2.89 by July 2017. Neeraj Agarwal, vicepresident at Antique broking, said the price ratio is closer to support levels, indicating a higher probability of outperformance in the FMCG index over the Nifty. 74310619 The Nifty FMCG index has underperformed the Nifty by 13 per cent in 2019 — the most in the past seven years — although the consumption stock index underperformed the benchmark for three years out of the previous 10.Also, the seasonality factors in the price ratio matrix may support the Nifty FMCG index. The cumulative average return in March and April of the Nifty FMCG index was 7.1 per cent, while the Nifty return was 4.4 per cent in the past 10 years. Stocks such as Godrej Industries, Tata Global, United Breweries, and Colgate have historically recorded the highest degree of outperformance in March and April, Antique Broking’s data showed.

from Economic Times https://ift.tt/2I1EkzP