Markets are bleeding, the consumption story is losing plot. But why are FMCG stocks still expensive?
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Synopsis
The NSE FMCG index is valued at a PE of 42x compared to the Nifty 50, which trades at 27x. In the last one month ended August 6, the Nifty is down 5%, but the FMCG index has registered a decline of only 2.5%. However, considering the overall demand trend, there is a possibility of the index falling further.
Indian stocks are trading at a high price-earnings (PE) multiple despite a consumption slowdown, and a turnaround appears to be a long shot. Shares are trading at a premium of 25%, 35%, and 38%, respectively, to their 5-7-10-year average PEs, according to a report by a domestic broking firm. “With corporate profit growth as well as wage growth at multi-year lows, consumption is likely to stay weak in FY20/FY21. Low- and mid-ticket consumption
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