What's Happening In FMCG

JC Parets
November 20, 2020

Last week we discussed our improving views on the Nifty FMCG, focusing on Dixon Technologies. We followed up on that discussion with more info during our Members-Only Conference Call.

Our friends over at Bloomberg reached out to us for some updated analysis, so we wanted to share what we told them here.

We hope this helps reiterate our views on the sector.

The Nifty Fast Moving Consumer Goods (FMCG) Index continues to consolidate within the context of its structural uptrend. Prices are stuck within a 2-year range near a flat 200-day moving average, signaling a lack of trend. Much like IT earlier in the year, we're watching for a breakout to new all-time highs which would suggest that the sector is ready to experience broad-based strength.

Click on the chart to enlarge view.

On a relative basis, prices have crashed towards a potential support level as momentum diverges positively. While this doesn’t suggest a trend reversal is imminent, it does suggest we should look for prices to start to stabilize around this level, especially after such a sharp decline.

Until the FMCG Index makes new all-time highs and participation broadens out, we'd prefer to focus on the stocks that have shown relative strength and are already making new highs. A weak sector was a headwind for these stocks and now that conditions are beginning to improve, these stocks should lead to the upside.

Here's an example, Hatsun Agro Products, which is breaking out to new all-time highs. Prices are above a rising 200-day moving average, and momentum is in a bullish regime. This breakout suggests that as long as prices are above 865, then the bias is higher towards 1,260.

And here's the stock breaking out of a multi-year base relative to the Nifty FMCG Index.

We know a lot of people are in the market for a catch-up play and have their eye on ITC Ltd., but the stock is coming off new all-time lows on a relative basis and is stuck below long-term resistance near 205 on an absolute basis.

Instead, we'd prefer to look at Bata India, which has been a laggard but is now resolving out of a 6-month base as momentum transitions into a bullish regime. As long as prices are above 1,290, then this breakout is intact and the bias is higher towards its all-time highs at 1,900.

And on a relative basis, we see the stock finding support at a long-term level of support/resistance near 0.04 and turning higher as momentum improves.

If we're going to make a bet on a recent laggard, we'll choose the one that has better absolute and relative trends over the long-term.

Overall, the FMCG Index remains a place we're looking for long ideas. As the strength in Equities continues, we'd expect the index to make new all-time highs on an absolute basis.

But until we get that confirmation of broad-based strength, it pays to be selective in the opportunities we take and stick with continuing leaders like Hatsun Agro Products and re-emerging leaders like Bata India.

As always, thanks for reading and please let us know if you have any questions!

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