FMCG sector may lose its sheen as Union Budget, monsoon disappoint

Delay in demand recovery and higher stock valuations mean low margin of safety, say analysts

Investors in the fast-moving consumer goods (FMCG) companies may be in for a shock. Despite slowing sales since the start of 2019, hopes of recovery in consumption demand, mainly from the second half of 2019-20 onwards, have kept the valuation of FMCG companies elevated. However, now, with no key triggers for demand revival visible in the near term, FMCG stocks could see a derating. 

On an average, at 51 times, the latest one–year forward stock valuation of FMCG majors are around 28 per cent higher to the long-term average. Muted performance by other sectors — automobile and steel, among others,