FMCG sector weightage in Nifty 50 falls to lowest level since 2010

The Nifty FMCG index has been almost flat since and is up just the 0.3 per cent since the start of the 2024 calendar year

The Indian equity market reached a new high on Wednesday as the benchmark S&P BSE Sensex crossed the 80,000 mark for the first time. Similarly, the National Stock Exchange Nifty 50 crossed 24,300 during the day and closed with gains of 0.67 per cent.

Year-to-date, the Nifty 50 has risen by 11.8 per cent, while the Sensex has increased by 10.7 per cent since the beginning of the year.

The recent rally in the Indian equity market occurred despite limited support from fast-moving consumer goods (FMCG) heavyweights such as Hindustan Unilever, ITC, and Asian Paints, among others.

The Nifty FMCG index has remained nearly flat, registering just a 0.3 per cent increase since the start of the 2024 calendar year. As of Wednesday, the FMCG index closed at 57,177.6, compared to 56,987.2 at the end of December 2023.

The underperformance of the FMCG sector has resulted in a gradual decline in its weighting within the index, now standing at only 10.5 per cent in the Nifty 50 — the lowest level since 2010.

In comparison, the sector held an 11.7 per cent weighting in the index at the end of December and reached 15 per cent at its peak in 2012.

 

Currently, the FMCG sector ranks as the fourth largest component of the Nifty 50, following the banking, financial services, and insurance (BFSI) sector (31.4 per cent weighting), information technology (IT) services (12.3 per cent), and oil and gas (11.7 per cent).

At the end of December 2023, it was the third largest, ahead of the oil and gas sector, which includes Reliance Industries — the country’s largest listed company.

There are six FMCG companies listed in the Nifty 50: Hindustan Unilever, ITC, Nestlé India, Asian Paints, Britannia Industries, and Tata Consumer, with a combined market capitalisation of Rs 18.8 trillion. Five of these six companies, excluding Tata Consumer, have underperformed the broader market over the past year.

Analysts attribute this underperformance to the sector’s weak financial results in recent quarters, which have diminished investor interest.

“Currently, investors perceive better prospects in sectors such as BFSI and IT, where stocks have shown relatively stronger performance,” says Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equities.

In the fourth quarter of 2023-24, combined net sales of FMCG companies rose by just 4.4 per cent year-on-year (Y-o-Y), while their adjusted net profit increased by 5.6 per cent Y-o-Y.

In comparison, all listed companies collectively saw a 7.2 per cent Y-o-Y increase in net sales and an 11.4 per cent Y-o-Y rise in adjusted net profit during the same quarter.

Analysts highlight that the FMCG sector’s financial performance has been impacted by weak consumer demand in rural India. The sector’s outlook for 2024-25 remains uncertain due to deficient rainfall in the initial month (June) of the current monsoon season, which could adversely affect crop sowing and rural incomes moving forward.

Market analysts also note that FMCG stocks have faced competition from retail investors’ preference for smallcap stocks in the current market environment.

“The Indian equity market is now dominated by retail investors, who predominantly invest in smallcap stocks. However, most FMCG companies are largecaps, leading to relative underperformance,” says Chokkalingam G, founder and chief executive officer of Equinomics Research.