FMCG, IT stocks see profit booking. Should you buy?

Among individual stocks, Dabur India and ITC lost over 3% each in the FMCG pack

Stocks of fast moving consumer goods (FMCG) and information technology sectors came under selling pressure on Tuesday with the S&P BSE FMCG index slipping 2.5% and the S&P BSE IT index losing 1.3%.

This is as compared to around over 1% slide in the benchmark indices – the S&P BSE Sensex and the CNX Nifty.

Among individual stocks, United Breweries and ITC slipped 3.8% and 3.5%, respectively followed by Dabur India, Godrej Consumer Products (GCPL), United Spirits and HUL that cracked in the range of 1.9 – 2.9%.

On the other hand, TCS, MphasiS, Tech Mahindra, Wipro, MindTree and Infosys were among the top losers in the IT space that slipped between 0.4 – 2.7%.

So, should you use this opportunity to invest in these two spaces?

Analysts suggest that investors should be mindful of the valuation of FMCG stocks; there are pockets of opportunity in the IT pack.

“We suggest investors should stay put in the market with strong set of companies in their portfolio. They should avoid high beta stocks. At all times we need to be careful about the valuation, hence stay away from FMCG stocks,” said Daljeet S Kohli, head of research, IndiaNivesh Securities.

Says a recent Asia Pacific report by Credit Suisse (CS): “We continue to suggest a switch out of expensive defensives like ITC (350% premium) into cyclicals. In India, the CS regional model portfolio only has cyclicals – HCL Technologies, Wipro, Tata Motors and Reliance Industries."

“Infosys is likely to deliver FY13-15 USD revenue CAGR of around 12%, which is closer to industry average as deal signings improve. There can be around 175 bps (basis point) expansion in operating margin from bottom due to increasing growth, favourable currency and cost efficiencies. The stock might fetch 15-20% in one year with target price of Rs 3750,” points out an analyst at Motilal Oswal research.

Vivek Mahajan, head of research at Aditya Birla Money is also bullish on Infosys in the IT pack. “Currently, Infosys is trading 1.5x on FY15(e) EPS, which is at 17% discount to the market leader TCS. We believe that the relatively lower valuation and recent under-performance makes the stock attractive. We expect the valuation gap to reduce in the medium term," he says. Besides, he also recommends buying ITC in the FMCG pack at the current levels with a one-year horizon for a 15 – 20% return.

In the IT pack, analysts at IIFL maintain a ‘buy’ rating on Infosys and Wipro for a target of Rs 3,744 and Rs 576, respectively over the next six – nine months.