FMCG firms lose defensive tag

The fast-moving consumer goods (FMCG) sector is usually touted as a defensive play, given its non-cyclical nature as these firms sell essential goods.

- Harsha Jethmalani

Small wonder then that FMCG stocks are usually able to beat the returns of the benchmark Nifty 50 index. But the sector has been unable to shield investors from stock market turmoil this time. The Nifty FMCG index has fallen 19% in the past six months while the Nifty 50 is down just 9%.

The fizzling out of urban consumption is a point that has weighed on the FMCG index. Demand challenges in the urban market, estimated to contribute 60% of the industry's revenue, are unlikely to wane soon. This, coupled with margin pressure, has been prompting downward revisions in earnings estimates of large FMCG firms. A global equity market correction has worsened the pain in FMCG stocks.