FMCG, banking schemes outperform markets

Equity schemes focused on fast-moving consumer goods (FMCG) and banking stocks have outperformed the market over three-month and one-year periods. FMCG funds are up an average 10 per cent and 22 per cent in the past three months and a year, respectively. Category averages for banking funds are eight per cent and 30 per cent, respectively, for the same period. In comparison, the benchmark BSE Sensex is up eight per cent in the past three months and 15 per cent in the past year.

With the markets seeing a broad-based rally, most investors have shown preference for diversified equity funds and balanced funds, which are sector-agnostic. However, thematic funds focused on FMCG, banking and even infrastructure have outperformed in the past year. The pharma funds are the only thematic segment which has generated negative returns.

Sharp gains in consumer goods stocks like ITC, Asian Paints, Britannia, Bata, Hindustan Unilever and Nestle have buoyed the performance of FMCG-focused equity schemes. FMCG funds have also delivered healthy returns to investors over a long-term period. The returns of FMCG funds, however, could moderate, as the price to earnings multiples of most companies have become “excessive”, warn analysts. Near-term earnings are likely to be weak for consumer companies due to the goods and services tax, says Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch, adding there could be a rebound in the second half of 2017-18.

Banking funds are another category that have yielded consistently attractive returns for investors. Analysts say these funds are a high-beta play on the markets. “Banking funds have a high correlation to the market. They usually outperform the market during an up-run and underperform during a downturn. Investors could opt for banking funds, as the markets will continue to do well,” says a fund manager.

Export-focused pharma and information technology (IT)-funds have been the underperformers due to regulatory headwinds from the US and rupee appreciation. Some experts are advising IT and pharma funds as contrarian bets, following the recent price erosion in these. These two sectors could see safe-haven buying if the markets get into a correction mode following a sharp up-move. Also, they expect demand for health care and IT to remain good, as global economic growth is seeing a rebound.

Pharma stocks like Sun Pharma, Aurobindo, Dr Reddy’s and Lupin have already seen a sharp rebound from multi-year lows in recent weeks.

Analysts say sector funds are for investors with high risk appetite and longer investment horizon.