Synopsis
It has happened at least four times in the last six months. The Nifty corrected very sharply, but one sectoral index traded in the green that day – the FMCG Index. Money, came the explanation, moves to “defensive stocks” in times of uncertainty. So, one question is: Should you buy FMCG stocks because they are considered defensive – those that fall relatively less in a volatile market? Or should they be bought because, after a good monsoon, there are signs of recovery in rural India. That means a greater likelihood these companies will report an improved quarterly performance. There is also a more fundamental question: Given that the Indian economy has changed and new sectors with better and more stable growth have emerged, should FMCG stocks be even considered defensive stocks? Or should the label be reserved for a new set of stocks?
There have been two instances in the last three months, and four in the last six months, when FMCG stocks and the FMCG Index have outperformed the headline indices. It might happen again on Thursday, as the markets react to the escalation of hostilities in the Middle East. Each time, many theories were floated about why the FMCG stocks are doing well. From describing them as defensive stocks to how the focus would now shift from investment to
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