Is the FMCG sector a good place to hide?

Sensex and Nifty are consolidating near their lifetime highs - moving up one day and down the next. FIIs have stared selling. Market experts are voicing concerns about near-term fundamental and technical headwinds.

What should small investors do? Stay on the sidelines, or continue to invest regularly? Where to invest? Everything appears so expensive!

At times like these, the best place to hide is the FMCG sector. Why? Because companies from the sector have visible earnings, generate a ton of cash, have negligible debt, don't require frequent capital expenditure and pay decent dividends. 

The sector is likely to benefit from GST and pent-up demand following demonetisation. If you have a long-term investment outlook (you should!) then you need to invest in this sector. If FMCG stocks appear expensive now - so did they five years back.

Brittania

The stock has been consolidating in a broad range for two years, but looks poised to break out upwards. The gradually rising 200 day EMA indicates a bull market.

Colgate-Palmolive

Colgate has gone nowhere in the past two years. A strong move above 1037 will be required for bulls to get the upper hand. It may be able to do so after a bit of correction.

Dabur India

Dabur's stock appears to be forming a large 'rounding bottom' pattern that can lead to an upward break out above 308. But it may take 2-3 months more to complete the bullish pattern.

Emami

Emami is trading below its three EMAs in bear territory. The correction may continue till it reaches the support level of 955.

Glaxo Healthcare

Glaxo is trading within a 'flag' pattern below its falling 200 day EMA in a bear market. A convincing move above its Mar '17 top of 5532 is required for bulls to regain control.

Godrej Consumer

The stock is consolidating within an 'ascending triangle' pattern near its lifetime high. The expected break out from the 'triangle' is upwards.

Hindustan Unilever

HUL has been stuck in a broad range for two years. The 200 day EMA is forming a 'rounding bottom' pattern that can propel the stock to a new high.

ITC

The stock is consolidating after touching a lifetime (bonus-adjusted) high. It has entered the dairy business, and plans to enter healthcare business - in an effort to reduce dependence on tobacco.

Marico

Marico is correcting overbought conditions after touching a lifetime high. It should continue to move higher.

Nestle

The stock has been in a down trend for almost 9 months. A false break out above the blue down trend line can lead to some more correction or consolidation.

[So, which of these stocks would be worth adding at current market price? Do a bit of due diligence during the long weekend.]

Is this a good time to enter FMCG stocks?

The answer to that question has already been provided in the previous update on FMCG sector stocks: “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.”

The secret to making money in the stock market was revealed by Warren Buffett: Be fearful when others are greedy and be greedy when others are fearful. In investing terms, it means buy when there are a lot of sellers and sell when there are a lot of buyers. That doesn’t mean all the stocks in a sector are worth buying – one has to use discretion.

Given below are the daily closing chart patterns of 10 stocks from the FMCG sector for the period Nov ‘10 till date. The period was chosen for comparison with the Sensex, which touched its all-time high in Nov ‘10 and is currently trading almost 20% lower.

Brittania

Brittania’s chart looks very bullish, but ripe for a correction. After dropping below all three EMAs in Feb ‘11, the stock spiked up sharply in May ‘11 after all three EMAs came close together (marked by light blue oval). Several months of sideways consolidation was followed by another sharp up move in Feb ‘12. However, all four technical indicators touched lower tops as the stock moved higher. The negative divergences can lead to a correction. Use the likely dip to enter.

Colgate-Palmolive

After briefly slipping below its three EMAs in Feb ‘11, Colgate’s stock has been in a steady up move, touching higher tops and higher bottoms. Negative divergences in all four technical indicators can cause a correction or sideways consolidation. This is a stock that one can buy on a regular basis instead of chasing after mythical multibaggers.

Dabur India

Dabur’s stock hasn’t performed as well as its MNC peers, but it has still outperformed the Sensex by moving higher than its Nov ‘10 high. The stock had a long correction from its Jun ‘11 peak to its Jan ‘12 trough – probably due to the unrest in the Middle East where Dabur has manufacturing and distribution facilities. The stock appears to be resuming its bull market and can be bought on dips.

Emami

Emami is the only stock that is trading below its Nov ‘10 peak. Though it reached a higher top in Jul ‘11, the subsequent correction dropped the stock’s price to a lower bottom, which is bearish. The rally from the Jan ‘12 bottom has not yet confirmed a return to a bull market. The technical indicators are looking overbought. The main promoter, who is also a director in a private hospital, was arrested due to a fire incident that caused many deaths. Avoid.

Glaxo Healthcare

Glaxo Healthcare’s stock has been in a steady up trend after the correction from the Nov ‘10 top got support from the rising 200 day EMA. Just goes to show what strong brands (e.g. Horlicks) can do to stock’s fortunes. Technical indicators are looking overbought. Use dips to add.

Godrej Consumer

After trading sideways for more than a year, Godrej Consumer’s stock has finally broken out upwards. Negative divergences in the technical indicators may lead to a correction or consolidation. Dips can be used to enter.

Hindustan Unilever

HUL’s stock formed a bullish cup-and-handle continuation pattern from which it has broken out upwards to touch an all-time high. The cup-and-handle break out has a target of 460. Hold with a trailing stop-loss.

ITC

ITC’s stock dropped below its 200 day EMA in Feb ‘11, giving a great entry opportunity. It recovered quickly and has been in a steady up trend ever since. Of late, the stock has moved up quite rapidly to touch an all-time high and is looking overbought. Hold with a trailing stop-loss.

Marico

Marico’s stock price is in a bull market. It formed a cup-and-handle continuation pattern from which it has broken out upwards. The upward target is 196. Hold with a trailing stop-loss.

Nestle

Nestle’s stock chart pattern should be an example for those who don’t believe in a long-term buy-and-hold investment strategy. Buy-and-hold doesn’t work for all stocks, but stalwart stocks can give fabulous returns over many years. This is another stock that can be added on a regular basis.

Related Post

The futile quest for the mythical 'multibagger'

Why do small investors get ‘cheated’?

The cynical answer to the question is: Because they deserve it. The cynicism can be explained by a recent incident during my last visit to the local market.

I was buying half a kilo of Kashmiri apples – the small, roundish kind with alternate patches of bright red and light green colours. They have a crisp, lightly sweet and fresh taste that takes me back on waves of nostalgia to my only trip to Kashmir more than 50 years ago. A place of such pristine and gorgeous beauty I have rarely ever seen again. But I digress.

As is my habit, I asked the rate per kilo, and was told by the young fruit vendor that it was Rs 80. As the young fellow was weighing the fruits, a middle-aged gentleman came by. He wanted to buy half a kilo of the Kashmiri apples as well, and proffered a Rs 50 note with this comment: “It is Rs 100 a kilo, isn’t it?”

The fruit seller glanced at me quickly, and observing my blank expression, simply nodded his head and promptly took the Rs 50 note. Now, being overcharged Rs 10 for half a kilo of apples may not seem like a big deal. The point is, the buyer unnecessarily tried to show-off that he was a knowledgeable buyer, and allowed himself to be ‘cheated’.

Should I have pointed out the correct price to the buyer and saved him Rs 10? That would have broken the mutual trust that has developed between the young fruit vendor and me over the past several years. I pay him whatever rate he asks, and he always gives me the best fruits from his pile.

What does all this have to do with investments? Change the ‘half a kilo’ to ‘500 shares’; ‘Kashmiri apples’ to ‘Dabur India’ (say); and ‘young fruit vendor’ to ‘Rakesh Jhunjhunwala’ (or, Ramesh Damani). A small investor could have bought Dabur shares for Rs 80 a few months back, but may choose to buy them at Rs 100 now. Due to the bear phase, the stock goes nowhere. After a couple of months, the stock’s price may drop to Rs 90, and the investor will probably exit in a hurry with a Rs 10 loss. Except that the loss is not Rs 10, but Rs 5000 – since the original quantity bought was 500 shares.

The investor feels ‘cheated’ because he bought a well-known FMCG stock, and still lost a decent amount of money. The fact that he made a couple of serious mistakes - buying at a higher price, and then selling at a loss because of a short-term mentality – may not dawn on him. A few more similar experiences may keep the investor permanently away from the stock market – with the feeling that the market is ‘manipulated by operators’ to ‘cheat’ innocent investors.

The moral of the story? Don’t allow yourself to be cheated. Do some prior preparation and planning. Talk to veterans of the market. Read a few books. Understand how the game is played. Opening a demat account and a trading account is a necessary formality but not adequate preparation for buying stocks.

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

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

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

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

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

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

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

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

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

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

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

Stock Market News, Financial News - Mar 25, 2009

Oil nears $54 on Geithner comments

By Chris Baldwin

LONDON (Reuters) - Oil retraced early losses on Wednesday, rising to around $54 a barrel after the U.S. Treasury Secretary said he was "quite open" to recent Chinese suggestions on moving to a new global reserve currency.

Oil appeared little moved by data from the Energy Information Administration that showed U.S. weekly crude stocks rose last week to their highest since 1993.  (More ...)

Satyam value in peril over toxic liabilities

Hindustan Times

The government's silence on the provision of any amnesty or protection scheme to prospective buyers fraud-hit Satyam Computer Services is set to bring down the valuation of the IT firm significantly, say experts involved in the deal.

The issue will be raised by the shortlisted bidders in the course of the due diligence process. Bidders, who are not satisfied with the financial and legal data provided to them on the IT firm, could even back out at the final stage.  (More ...)

Dabur's Burman plans 200-strong eatery chain

Hindustan Times

From Ayurvedic medicines and consumer goods to fast food. Dabur's vice-chairman Amit Burman is now on an entrepreneurial drive to set up a chain of quick-service food outlets.

"We are going to invest Rs 200 crore towards 200 "Lite Bite" food joints to be set up soon all across India," Burman told reporters on the sidelines of the Food Forum of India industry seminar last week.  (More ...)

--------------------------------------------------------------------------------------------------------------

ADVFN World Daily Markets Bulletin (excerpts)

US Stocks at a Glance

Major Averages Move Off Their Highs But Remain Firmly Positive

Stocks have shown a strong upward move over the course of morning trading on Wednesday, with the major averages offsetting the losses posted in the previous session. The rebound comes as traders react to some much better than expected economic data.

Earlier in the day, the Commerce Department released a report revealing that durable goods orders unexpectedly showed a substantial increase in the month of February after falling in each of the six previous months.

The report showed that durable goods orders jumped 3.4 percent in February after falling by a revised 7.3 percent in January. Economists had been expecting durable goods orders to fall by 2.5 percent compared to the 4.5 percent decrease that had been reported for the previous month.

The Commerce Department also released a separate report showing an unexpected in increase in new home sales in the month of February, continuing a recent string of better than expected housing market reports.

The report showed that new home sales rose 4.7 percent to an annual rate of 337,000 in February from an upwardly revised January rate of 322,000. The results surprised economists, who had been expecting sales to fall to 300,000 from the 309,000 originally reported for the previous month.

In recent trading, the major markets have moved well off their best levels of the day, although they are holding onto strong gains. The Dow is currently up 148.46 at 7,808.43, the Nasdaq is up 26.03 at 1,542.55 and the S&P 500 is up 15.07 at 821.32.

Canadian Market

Toronto Stocks Move Moderately Higher In Morning Trading

Toronto stocks have turned higher in Wednesday morning trading, recovering some of the losses seen yesterday. Gold-related stocks were among the big gainers as the precious metal rebounded on the Comex.

The S&P/TSX Composite Index has added 79.27 points or 0.89% to move at 8,928.66. A higher close would be the 10th in 12 sessions.

European Shares

FTSE struggles as miners fall
Market Movers
FTSE 100 3,866.48 -1.15%
techMARK 1,123.30 -0.37%
FTSE 250 6,319.36 -1.31%

For the second day in a row a bright start has been undermined by the mining sector.

Platinum is the problem today with Anglo American and Lonmin the worst performers, though Rio Tinto is also lower even though the Australian Competition & Consumer Commission opted not to block the increase of Chinalco’s stake to 18%.

Broker Evolution Securities observed that the controversial deal still has more difficult obstacles to overcome and suggests that the recent rally in the Rio share price presents a ‘strong selling opportunity’.

Asia Markets

Asian markets end mixed as investors take profits

The markets across the Asia-Pacific region ended mixed on Wednesday, as investors preferred profit taking following an extended relief rally. The markets, having shrugged off the early weakness following a weak closing by Wall Street stocks, could not maintain the momentum and the euphoria over a revival in global economic conditions seems to be losing steam for want of evidence that could instill confidence. Global demand continues to be weak as is evident from a report released earlier in the day by the Japanese government, which showed that exports plummeted by a record 49.9% year-over- year while imports fell 43.0% year-over-year to 3.443 trillion yen.

Commodities

Crude Oil Drops Ahead Of EIA Report

Oil prices dropped for a second straight day on Wednesday as traders looked ahead to the Energy Information Administration's weekly inventory report. The drop took crude further off its recently seen multi-month high.

Crude oil prices fell to $52.60, down $1.38 for the session. Prices touched as low as $52.08 in the early going.