Over the last few years, the focus on quality and high return ratios led investors to jump into fast-moving consumer goods stocks, often at arguably high valuations. However, with commodity costs spiking due to various macroeconomic and geopolitical issues, these companies are likely to face margin pressure over the next few quarters. The underperformance of these stocks relative to the broader markets is visible from the large differential in the performance of the Nifty FMCG index and the broader Nifty 50 Index. FMCG behemoth Hindustan Unilever has witnessed a 10 per cent decline in its stock during the same period. Year-to-date, the Nifty 50 has risen by 17.04 per cent, compared to 9.75 per cent for the Nifty FMCG index. Volatility in commodity prices and fears of hurting demand haven’t allowed these companies to pass on the entire cost increase, which is visible in the companies’ lower gross margins.
Why are much-loved FMCG Stocks Underperforming?
Why are much-loved FMCG Stocks…
Why are much-loved FMCG Stocks Underperforming?
Over the last few years, the focus on quality and high return ratios led investors to jump into fast-moving consumer goods stocks, often at arguably high valuations. However, with commodity costs spiking due to various macroeconomic and geopolitical issues, these companies are likely to face margin pressure over the next few quarters. The underperformance of these stocks relative to the broader markets is visible from the large differential in the performance of the Nifty FMCG index and the broader Nifty 50 Index. FMCG behemoth Hindustan Unilever has witnessed a 10 per cent decline in its stock during the same period. Year-to-date, the Nifty 50 has risen by 17.04 per cent, compared to 9.75 per cent for the Nifty FMCG index. Volatility in commodity prices and fears of hurting demand haven’t allowed these companies to pass on the entire cost increase, which is visible in the companies’ lower gross margins.