Weight of FMCG companies in Nifty50 lowest in a decade, shows data

Consumer stocks remain the biggest laggard on the bourses. The Nify50 weighting of FMCG stocks declined to a decade low of 9.9 per cent at the end of March this year, down 150 basis points from 11.4 per cent a year ago.

At their peak in March 2013, major FMCG stocks, such as Hindustan Unilever, ITC, and Asian Paints, together accounted for 15 per cent of the Nifty50. But now together with automobile stocks, the consumer goods sector accounts for only 14.7 per cent of the index, down 200 basis points in the past 12 months and 37 per cent from the record high weighting of 23.4 per cent at the end of March 2014.

The combined weighting of automobile stocks that are part of the Nifty50 is down to 4.8 per cent, from an all-time high of 10.6 per cent at the end of March 2016.

Industry leader Hindustan Unilever’s market capitalisation is down 15.7 per cent to Rs 4.81 trillion (as on March 31, 2022), from Rs 5.71 trillion at the end of March 2021, while Britannia Industries’ m-cap has slipped 11.5 per cent in the past 12 months. ITC and Nestlé India performed better on the bourses, with a 14.8 per cent and 1.3 per cent rise in their market cap, respectively, in FY22; still they underperformed the index. On the other hand, Asian Paints (up 21.4 per cent) and Tata Consumer (up 21.7 per cent) beat the index last financial year.

The decline in the FMCG sector is largely due to poor showing by top companies in the past 12= months. The combined m-cap of the six FMCG firms in the index was up only 0.5 per cent YoY to Rs 14.02 trillion at end of March 2022, against a 20.4 per cent surge in the combined value of the Nifty50 companies.

Similarly, automakers were laggards, except Tata Motors – which was up 44.8 per cent in FY22. The combined m-cap of the six industry heavyweights that are part of the index rose just 8.3 per cent last financial year to Rs 7.01 trillion at the end of March 2022. Hero MotoCorp was the biggest laggard (down 21.2 per cent), followed by Eicher Motors (down 5.6 per cent), and Bajaj Auto (down 0.5 per cent). On the other hand, Maruti Suzuki was up 10.2 per cent and Mahindra & Mahindra was up 1.4 per cent in FY22.

Analysts attribute the poor showing by FMCG and auto stocks to a combination of demand slowdown and rising input costs.

“Earnings growth in the FMCG and automotive sectors has been below par in recent quarters due to the combination of poor demand growth and decline in manufacturers’ margin because of input inflation. The outlook is also challenging due to a sharp rise in energy, food, and metal prices after the Russian attack on Ukraine,” says G Chokkalingam, founder & MD Equinomics Research & Advisory Services.

On the other hand, there have been earnings upgrades in sectors like IT services, oil & gas, mining & metals, and telecom; their weighting in the index went up last financial year.

Some experts say that the relative decline of the FMCG and automotive sectors is part of a long-term structural change in the economy. "The auto sector has been in decline since 2018; FMCG began to underperform two years ago. It’s part of a global trend of a move towards digitisation of consumption and various other economic activities. This has led to a big rally in the IT sector, while companies in the traditional sectors have turned laggards," says Shailendra Kumar CIO Narnolia Securities.

Additionally, the auto sector is facing disruption from growth of electric vehicles (EVs) that has created demand uncertainty for conventional two-wheeler and passenger vehicle manufacturers.