Beat benchmark indices for the fourth year but most analysts still caution one must be careful while investing in this space
Stocks from the health care and fast-moving consumer goods (FMCG) sectors are set to outperform the market for a fourth year, as investors turn to safe-haven defensive stocks amid economic uncertainty, both at the global and domestic levels.
In the past three years, these shares performed well, delivering handsome returns compared to the benchmark indices. This year has been no different, despite intermittent rounds of ‘risk-on’ trade that brought high-beta stocks back into focus.
So far this year, the S&P BSE healthcare, FMCG and IT indices have gained about 13 per cent each, against a 2.4 per cent rise in the benchmark S&P BSE Sensex. Last year, the IT sector had underperformed the market, primarily due to a poor performance by Infosys. The segment had performed well in the two preceding years.
“In the last three-five years, we have had pressure not only from domestic factors (interest rates, growth concerns, inflation, current account deficit, etc), but certain global environment (problems in the Euro zone, crude oil prices, etc) have also played spoilsport. So, a series of such domestic and global factors have seen investors rush to safer havens such as defensive stocks,” says G Chokkalingam, executive director and chief investment officer, Centrum Wealth Management.
Despite the run-up in most of these stocks and the valuations these are available at, investors continue to flock to these. In a surprise move, the Reserve Bank of India raised the repo rate by 25 basis points (bps) to 7.5 per cent last week to check inflation. Analysts say interest rate-sensitive sectors such as real estate, infrastructure, automobile and banking may see correction, amid concern hardening interest rates would hit demand for new loans, housing and vehicles.
Currently, FMCG stocks are available at an average price-to-earnings multiple of 40.78, while pharmaceutical stocks are at 28.84, much higher against the BSE Sensex’s 17.88.
Jyotivardhan Jaipuria, managing director and head (research) at Bank of America-Merrill Lynch, says, “Over the past month, the markets have rallied strongly, led mainly by financials and domestic rate-sensitive sectors. We think as the markets correct, we will see a correction in some of these sectors and software and pharma, which have under-performed past month (though strong performers so far this year) will outperform the market again.”
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