Defensive sectors shine in choppy markets

In the recent turmoil in equity markets, the Bombay Stock Exchange (BSE) benchmark, Sensex, has lost 14 per cent so far this calendar year and investors have become poorer by Rs 10.7 lakh crore. However, most defensive sectors and high-dividend-yielding stocks have performed well at the bourse and managed to give a positive return.

For instance, the fast moving consumer goods (FMCG) sector, considered a defensive bet in volatile times, has outperformed the market by giving an average 14 per cent return and the consumer durables sector is up three per cent, while pharma has restricted its losses to sub-nine per cent.

Defensive stocks are those whose businesses are not so much dependent on economic prosperity and generally do well when market corrections are more technical or remain rangebound.

STRONG OUTPERFORMANCE
Among individual stocks, ITC, Colgate-Palmolive and Marico from the FMCG pack, Wockhardt, Novartis India and Pfizer from the pharma space, and Bata India, Tata Coffee and TTK Prestige from the consumer durables sector have given a positive return of over 15 per cent each in the last two years.

“In the current equity environment, dividend-based strategies offer investors a favourable risk-reward profile, which may be pursued to obtain more stable return patterns. Defensive companies, which have good cash and are benefiting from robust demand due to a good monsoon, will not correct,” said A K Prabhakar, senior vice-president at Anand Rathi Securities. The huge inflow of investments helped defensive stocks trade at high price-to-earning (PE) ratios, he said.

The BSE FMCG and the consumer durables indices are trading at PE ratios of 32 and 20 times, respectively, whereas the broader index, the BSE Sensex, attracts a PE ratio of 19 times.

“The valuations for consumer staples remain high after the recent outperformance, partly driven by volatility in markets, triggering the rush for safe haven sectors,” said Prabhudas Lilladher in a report.

Foreign institutional investors, who are net sellers in the Indian equity markets, have been accumulating defensive sector stocks like TTK Prestige, ITC, Colgate-Palmolive, VIP Industries and Indraprastha Gas for the past two years, data shows.

BOOM IN THE GLOOM Share price on BSE in Rs
	Dec 31, ‘09	Dec 31, ‘10	%chg#	Nov 4, ‘11	%chg*
Guj Flurochem	130.35	217.05	66.5	532.50	145.3
Bata India	198.8	362.55	82.4	723.95	99.7
Gitanjali Gems	124.8	209.6	67.9	354.15	69.0
Tata Coffee	397.5	501.95	26.3	839.70	67.3
TTK Prestige	424.25	1,620.95	282.1	2660.35	64.1
CRISIL	441.81	594.87	34.6	912.45	53.4
Petronet LNG	71.65	124.95	74.4	170.45	36.4
Colgate	659	867.8	31.7	1075.90	24.0
ITC	125.42	174.5	39.1	210.35	20.5
Titan Inds	71.1	180.06	153.2	216.80	20.4
#Change over Dec 31, ‘09                                                                               *Change over Dec 31, ‘10