Topic: Market Outlook

Investors who invested in the FMCG and pharmaceutical space (only 156 companies from BSE 800 stocks performed really well) have generated absolute returns of >27% since Dec 2007.

 

So comparing it with today’s scenario, which stocks can we buy from these 2 sectors so as to duplicate the previous scenario?

 

I have tried to look at

 

1. Absolute returns generated across the period
2. ROE across the period
3. Growth rate of the previous 3 years and estimations for the next 2 years
4. PE available then and now
5. Dividend factor is not considered

 

But the question, is why only these sectors?

 

FMCG sector

Perhaps it is one of the most defensive bets in bull markets. It actually does not fall as much than the Sensex does when there are crashes. Most of the products are generally known by the public, and propagating Mr. Peter Lynch theory of buying what you know, FMCG stands amongst the best sector to invest in. Financials are usually a delight to watch out for i.e. clean balance sheets, decent growth, great returns on equity, very low debt, negligible capex and moderate PE’s. Moreover, it has fewer variables to analysis.

 

Pharma sector

It is more difficult to analyse than the FMCG sector considering it has more factors to analyse. But it also has similar traits like the FMCG sector such as good financials & stable business.

 

Note: More variables to analyse means more deviation from the fair value of the company

 

Table indicating companies’ performance:

 

Company	CMP-05Mar10	ROE 2009 (%)	ROE 2006 (%)	PE (ttm)	P/E 2009	P/E 2007	Growth (09-07)	Growth (07-05)	% change
FMCG
Mcleod Russel India	235	14	6	29.0	27.6	21.1	85%	-224%	158%
Procter & Gamble	1921	41	51	35.0	31.9	18.2	99%	-28%	124%
GSK Consumer Healthcare	1496	25	23	27.0	29.4	29.4	49%	87%	80%
Emami Ltd	578	30	50	47.0	39.9	39.3	31%	124%	77%
Colgate Palmolive India	705	134	50	33.0	33.8	40.7	75%	44%	74%
Asian Paints	1962	33	31	52.0	50.4	58.0	34%	57%	74%
Godrej Consumer Products	258	30	110	49.0	39.7	24.0	11%	-64%	73%
Nestle India	2701	114	87	40.0	45.9	46.9	71%	2%	71%
Marico	102	38	36	44.0	43.4	40.4	24%	48%	47%
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