FMCG stocks will continue to do well: Nomura

Consumer stocks, which are trading at a very rich valuations, will continue to do well driven by strong growth outlook, believes Japan-based brokerage firm Nomura.

“Consumer stocks are trading currently at an average of 27 times 2013-14 price to earnings multiple, higher than the long-term average of around 24 times. We expect valuations to remain at current elevated levels in the near to medium term due to continued strong growth and prevailing risk-off environment,” said a Nomura report titled 'Consumer will continue to be king' co-authored by research analysts Manish Jain and Anup Sudhendranath.

The duo add, “Over the next few quarters, the growth outlook continues to remain strong for consumer companies in India. Unlike our previous expectations, we are yet to witness any meaningful slowdown or trading down in the staples sector. Our on-the-ground feedback and company commentary suggest that volumes are likely to remain buoyant in the medium term, concerns such as delay in monsoons and economic slowdown notwithstanding.”

BSE FMCG index, the Bombay Stock Exchange barometer for consumer goods stocks, was trading marginally higher at 5,214.97 points at 3.15 pm (India time) even as the benchmark Sensex was down 0.72% at 18,362.25. Godrej Consumber and ITC were the biggest gainers on the BSE FMCG index.

Nomura's 'top buy' is ITC. It has increased its  price target on the stock from Rs 246 to Rs 310 per share. The brokerage has also upgraded Hindustan Lever (HUL) stock to a 'neutral' rating on the back of continued strong operational performance. It has also increased its price target on HUL from Rs 327 to Rs 527 per share.  Godrej Consumer as well has a 'buy' rating with an increased price target of Rs 800 from earlier target of Rs 524 per share.

Shares of ITC were trading 0.9% up at Rs 256.4, HUL was last trading 0.9% lower at Rs 526.40 and Godrej Consumer was up 2.5% to Rs 661.05 on the BSE.

The defensive FMCG sector has underperformed the market in the last few trading sessions.