Why FMCG is a beacon of stability amid market turmoil
Indian equity market has been witnessing a steady decline over the past four months. After reaching a new all-time high on September 27, 2024, the benchmark Nifty 50 index has fallen by 11.5%. This correction is because of several factors, like weaker-than-expected GDP growth and lower-than-expected quarterly earnings, which have dampened investor sentiment. As a result, there has been a notable shift in investor sentiment from a «risk-on» to a «risk-off» approach, favoring defensive sectors over aggressive ones.
This sentiment shift is reflected in the performance of sectoral indices since the Nifty 50's peak. Defensive indices such as Nifty IT, Nifty Pharma, Nifty Healthcare, and Nifty FMCG have demonstrated resilience, with comparatively smaller drawdowns during the broader market decline.
An interesting trend can be observed through the ratio chart of the Nifty FMCG Index and the Nifty Small-Cap Index. Currently, this ratio is near a 13-year low of 3, a level that has historically acted as a strong support point. When this level is reached, the ratio often sees a reversal, favoring defensive plays like FMCG.
Historically, the March-to-September period has been favorable for the FMCG sector. Over the past 15 years, the CNX FMCG index has delivered positive returns more than 70% of the time during this period. Last year, I highlighted the potential for strong performance in FMCG starting in March, and the index subsequently surged 22%, reaching a new all-time high by September 23. This year, the chances of a
