As the cost of most FMCG goods will come down post GST, fund managers say that they are bullish on FMCG sector.
Factors like the good performance of FMCG companies, rolling out of GST, good prospects of monsoon and revival in demand post demonetisation are leading fund managers to view the sector positively.
“We are looking at sectors that would gain from the GST. FMCG is a sector where the unorganised sector has a lot of presence. Post GST, advantages for the unorganised sector in the form of pricing arbitrage will go away making organised FMCG sector attractive for investors,” says Harsha Upadhyaya, CIO – Equity of Kotak Mahindra Mutual Fund.
Mumbai-based IFA Vinod Jain of Jain Investments believes that investors with high-risk appetite should invest in FMCG funds. “GST will benefit consumer goods sector. In fact, FMCG stocks have run up a bit. Going forward, stocks of smaller FMCG companies may also go up. Moreover, inflation is cooling down which would boost rural demand.”
Positive expectation of earnings growth in the FMCG companies is also making fund managers bullish on this sector. “Manufacturing costs for organised sector will come down post GST. Also, with the prospects of good monsoon and easing inflation, real demand will go up making a strong case for revival in earnings growth cycle of FMCG sector,” says Ankit Jain, Associate Fund Manager at Mirae Asset Mutual Fund.
He further adds that FMCG funds are comparatively less volatile making such funds a good long-term investment option. He recommends that investors should invest up to 25% of lump sum investment in these funds.
However, experts say that investors should avoid FMCG funds as the valuation is a bit stretched which may hamper the performance of these funds. Navneet Munot, CIO of SBI Mutual Fund says, “Currently, the valuation of FMCG companies is not attractive. Even though, FMCG funds may generate stable returns over a long period of time, investors should be realistic when it comes to return expectations from these funds.”
“Although GST may prove to be beneficial for these businesses, our view is that stocks are trading at a high premium and hence we will not suggest FMCG funds to our clients,” says Vishal Dhawan of Plan Ahead. He adds that if an investor wants to invest in these funds then they should invest by SIP or STP process and not make lump sum investment.
