MF's allocation to FMCG hits rock bottom

MF's allocation to FMCG hits rock bottom

Thanks to the broad-based rally seen in the stock markets over the last few months that FMCG, once a must have sector in fund managers' portfolio, has taken a back seat.

A mere 4.62 per cent of overall equity assets deployed in stocks have gone into shares of FMCG companies. In other words, out of the deployed 2.54 lakh crore rupees in stocks, only Rs 11,785 crore could remain in counters of FMCG companies.

Fund managers say that there has been pressure on volume growth of FMCG companies on the back of high inflation and reduced discretionary spending. Though they do not see any problem in the structural growth story of the sector but say that other opportunities in the market as several sectors trading at much cheaper valuations made them do away with FMCG for the time being. Of course, uncomfortably higher valuations of many of these counters have rendered them unattractive.

Mahesh Patil, Co-Chief Investment Officer (CIO) at Birla Sun Life Asset Management, says, "We are positive on most sectors except consumer staples where the slowdown in volume growth and high valuations render it less attractive."

The shift is clearly towards cyclicals as financials, capital goods stocks and mining, among others. It is not so that fund managers have suddenly cut down their exposure to FMCG. During the last one year, there has been a cautious approach towards defensives, FMCG, in particular owing to stretched valuations.

According to S Naren, CIO of ICICI Prudential AMC, relative to previous years when consumer goods, pharmaceuticals and software were the favourites, cyclicals offer better opportunities. "The consumer space, which is already trading at 30 times the earnings, looks far less attractive compared to other cyclicals that offer better value," says Naren.

Agrees U R Bhat, managing director of Dalton Capital Advisors. "FMCG companies had a fantastic run when cyclicals were not doing well. Investors are going to do some sector rotation, since money will migrate to sectors that can generate better returns. The valuations of FMCG appear stretched," says Bhat.

Investors' call on FMCG seems to have worked well this year. The year-to-date (YTD) returns from FMCG index stands at an unacceptable level of about 5 per cent at a time when benchmark key indices have gained nearly 21 per cent. Further, during the same period, banking and capital goods indices offered a handsome returns of 34 per cent and 53 per cent, respectively.

Presently, shares of banks account for nearly 22 per cent of the total equity assets while Information Technology (IT) has still managed to attract over 10 per cent of the mutual funds' equity corpus. Sectors like automobiles (including ancillaries), cement and capital goods have seen substantial rise in exposure in fund managers' portfolio.

"In a distressed cycle, the markets reward efficiency and earnings power. Defensives move to a pole position in such an environment," says Navneet Munot, CIO of SBI Mutual Fund.

Business Standard
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Regards,

Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com


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