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Sunday, January 16, 2011

When stock markets slide, FMCG is the sector where investors can hide

FMCG is my favourite sector to invest in, regardless of the state of the stock market and the economy. Strong brands, positive cash flows, low debt, generous dividends, bonus issues and stock splits make this sector worth every Rupee you invest in it.

But when stock markets start to slide sharply – with or without any logical reasons – investors learn to really appreciate the FMCG sector. Why? Because the stocks in the sector tend not to fall as much as the broader market. The high-flying momentum stocks with promises of bright futures may give you phenomenal returns in quick time, but there won’t be any place to hide when those same stocks start tanking.

The Indian markets have underperformed global indices for the past two months by correcting about 10% from its Nov ‘10 top. It is not a huge fall for a bull market that rose from 8000 in Mar ‘09 to 21000 in Nov ‘10. But investors are already showing signs of fear and panic. Corrections are part and parcel of investing in the stock market. If you lose sleep every time the market corrects, be overweight in the FMCG sector.

Here are the chart patterns of 10 leading stocks from the FMCG sector in alphabetical order. The sector is a great defensive bet but not all stocks are worth investing in at this point in time.

Brittania

Brittania_Jan1411

The Brittania chart pattern looks the weakest. Right after the 5:1 stock split in Sep ‘10, the stock hit a high of 535 (split-adjusted), made a high-volume reversal day pattern and moved into a down-trend. Of late, it has dropped below its 200 day EMA and is likely to breach the long-term support of 355. Avoid.

Colgate-Palmolive

Colgate_Jan1411

The Colgate chart pattern shows consolidation within a symmetric triangle after the stock touched a high of 996 and a low of 815 in Nov ‘10. A likely break below the triangle can test support from the rising 200 day EMA. Partial profit booking may be in order.

Dabur India

Dabur_Jan1411

After the 1:1 bonus in Sep ‘10, the Dabur stock hit a high of 112 (bonus-adjusted) before correcting down below its 200 day EMA to the support level of 91 in Nov ‘10. A sharp pullback took the stock above all four EMAs. It has been consolidating sideways between 99 and 105 for the past month. Accumulate.

Emami

Emami_Jan1411

Following the 1:1 stock split in Jul ‘10, the Emami stock steadily moved up to touch a high of 512 (split-adjusted) in Oct ‘10. It started to drift down and then suddenly collapsed below its 200 day EMA, down to 312 in Dec ‘10. A quick pullback has taken the stock above its long-term moving average, but the stock is trading below its falling 50 day EMA. Hold, with a stop-loss at 405 (200 day EMA).

Glaxo Healthcare

GlaxoHealth_Jan1411

The Glaxo Healthcare chart pattern is in a bull market. After reaching a high of 2460 in Nov ‘10, the stock has been consolidating in a symmetrical triangle from which the likely break out is upwards. The stock is trading above its rising 100 day and 200 day EMAs. Buy, on a high volume break out above the triangle.

Godrej Consumer

GodrejCons_Jan1411

The chart pattern of Godrej Consumer entered a downward-sloping channel after touching a high of 480 in Sep ‘10. It slipped below its 200 day EMA to get twin support from the level of 354 and the lower end of the channel in Dec ‘10. It has moved up to the upper end of the channel. Buy only on a high-volume break out above the channel.

Hindustan Unilever

HUL_Jan1411

From Jan ‘10 to May ‘10, the HUL stock traded well below its 200 day EMA, trying the patience of its long-term investors. It started its up move from Jun ‘10 and hit a high of 320 in Sep ‘10. It has since consolidated in a rectangular channel between 320 and 283. An upward break out earlier this month on decent volumes saw no follow-up buying, and the stock is back within the rectangular channel. The stock is trading above its rising 100 day and 200 day EMAs. Note that HUL reached a higher top than the one in Nov ‘10, while the Sensex made a lower top. Accumulate.

ITC

ITC_Jan1411

After the centenary 1:1 bonus issue, the ITC stock rose steadily to reach a high of 185 before starting a sideways consolidation between 166 and 181. The stock is trading above its rising 100 day and 200 day EMAs. Like HUL, the ITC stock touched a slightly higher top in Jan ‘11. Accumulate.

Marico

Marico_Jan1411

Like the Godrej Consumer stock, Marico is trading in a downward-sloping channel. After hitting a high of 153 in Oct ‘10, the stock fell below its 200 day EMA and the support level of 119 down to 115 in Dec ‘10 – a 25% correction. The recovery has been tepid. Buy only on a high-volume break out above the channel.

Nestle

Nestle_Jan1411

The Nestle chart pattern is in a strong bull market. It touched a high of 4199 in Nov ‘10 and has been consolidating sideways, with good support from the rising 50 day EMA. The 100 day and 200 day EMAs are also rising. Use dips to accumulate.

Related Post

Chart Patterns of 10 Banking Sector stocks

2 comments:

zohar said...

Subhankar Sir ,
Can you please make a analysis of ASIAN PAINTS.
Zohar Batterywala
zoharsb@gmail.com
your linkedin connection

Subhankar said...

Sorry, I don't track Asian paints, Zohar.

The stock is undergoing a correction, but is looking long-term bullish.