Monday, August 10, 2009


The newspaper clipping below is from the
Business Standard newspaper, Mumbai,
6th August 2009.
I saw this a few days ago, but got down to writing about it only this evening.

Source :Overpriced FMCG stocks leave fund managers a worried lot
The recent rally in FMCG (Fast Moving Consumer Goods – toothpaste, detergents, tobacco products, bathing soap etc) and Auto stocks has continued on, despite concerns of a deficient monsoon.

Over the last couple of sessions, the Auto and FMCG sectors have sold off rapidly on concerns of a sub – par monsoon season. Valuations in both these sectors had run up a lot and were factoring in a far more ‘rosy situation’ than the one we are faced with.

The government has not declared a major failure of the monsoons just yet. So far we’ve only had ‘concerned’ statements from various government authorities that the monsoons are sub par this year.

We may only know the exact outcome in a few weeks time.

Here’s what I think -

  • Rural consumption demand in India is still largely monsoon dependent, and irratic and untimely rainfall, will definitely impact this predominantly agrarian section of the economy.

  • FMCG stocks are companies that sell products for every day use, and consumption usually remains steady even during downturns. Thus the sector is considered 'defensive'. However, investors must remember, that you never make money by buying into an investment at expensive valuations.

  • FMCG goods and car / motorbike sales this festive season (Diwali), will be negatively impacted if the monsoons do not improve soon enough. Valuations in these sectors do not leave an investor with an adequate margin of safety if he has bought into these sectors recently.

  • I would advise investors not to ‘chase performance’; and buy into rising stocks just because they feel left out. Investors’ who says ‘that fundamentals don’t matter’ are just ‘momentum’ chasers, and are probably going to lose a lot of money in the long run!

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