First in 20 years: HUL to ITC, FMCG stocks lose out in a falling market

Sector weight in Nifty 50 declines to 9.5%, the lowest since 2011

For the first time in 20 years, FMCG stocks —such as Hindustan Unilever, ITC, and Asian Paints — are failing to act as defensive assets and are underperforming in a falling market.

 

The Nifty FMCG index has declined 20.2 per cent since the end of September 2024, when the Indian equity market peaked on a monthly basis, compared to a 12.6 per cent fall in the benchmark Nifty 50 over the same period. The trend has persisted into 2025, with the FMCG index down 8 per cent since the start of the calendar year, compared to a 4.6 per cent decline in the Nifty 50.

 

Since the end of FY24 (March 2024), the FMCG index has dropped 3.2 per cent, while the benchmark index has risen 1 per cent. As a result, the FMCG sector’s weighting in the Nifty 50 has declined over the past year. The FMCG sector now holds a 9.5 per cent weight in the Nifty 50 — lowest since March 2011, when it stood at 9.2 per cent. By comparison, the sector’s weighting was 11.1 per cent at March-end in 2014 and 10.9 per cent at September-end in 2024.

 

Historically, FMCG stocks have outperformed in weak markets, cushioning declines and increasing their relative weighting in the index. Conversely, during market rallies, cyclical and high-beta sectors — such as banking, metals, oil & gas, and capital goods — have outperformed, leading to a relative decline in FMCG weighting. 

 

A high negative correlation has traditionally existed between changes in FMCG sector weighting in the Nifty 50 and the benchmark index’s one-year returns. However, this historical pattern has now broken, with FMCG stocks among the worst performers in the current market selloff, contributing to a steady erosion of their index weighting. 

 

The last time FMCG stocks exhibited such a pro-cyclical pattern — declining in tandem with the broader market —was during FY01 to FY03. Over that period, as the Nifty 50 fell 15 per cent between March 2001 and March 2003, the FMCG sector’s weight in the index dropped from 24.9 per cent to 19.1 per cent.

 

For more than 20 years, FMCG stocks have served as a safe haven during market downturns, including the Covid-19 selloff and the correction in FY23. For instance, at the end of FY20, FMCG weighting surged by 320 basis points to a six-year high of 14.5 per cent as the Nifty 50 plunged 26 per cent due to the pandemic. This was followed by a steady decline in sector weighting over the next two years, as the market rallied 70.9 per cent and 18.9 per cent in FY21 and FY22, respectively, bringing FMCG weighting down to 9.9 per cent by March 2022.

 

The sector outperformed again in FY23, lifting its weight by 260 basis points as the Nifty 50 declined 0.6 per cent. The cycle reversed in FY24, with the Nifty 50 surging 28.6 per cent.

 

A similar inverse relationship between FMCG performance and broader market trends was evident during the FY09 selloff amid the 2008 global financial crisis and the Eurozone crisis-induced selloff in FY12.

 

Analysts attribute the sector’s current pro-cyclical movement to earnings concerns. “In the past 20 years, Indian GDP growth was strong and FMCG companies consistently saw double-digit growth in revenues and earnings, leading to a big rally in their share price. The growth era seems to have ended now and most FMCG companies are struggling to grow their volume; their outlook remains pessimistic. This had led to de-rating and a big selloff in the sector,” said G Chokkalingam, founder & CEO, Equinomics Research.

 

Other analysts point to weak private consumption and historically high FMCG valuations as factors behind the sector’s underperformance. “Private sector stocks -- such as HDFC Bank and IndusInd Bank -- are the new defensives given their poor stock performance in the past five years and record low valuations,” said Dhananjay Sinha, co-head research and equity strategy at Systematix Institutional Equity.

 

According to Sinha, the equity market is adjusting to an era of lower economic growth, which will translate into subdued earnings growth for FMCG firms and further valuation de-rating.

 

And there is some evidence of this shift. The banking, financial services, and insurance (BFSI) sector’s weighting in the Nifty 50 has increased by nearly 390 basis points since March 2024, reaching 34.4 per cent as the sector outperforms the broader market.