Are we in a bull or a bear market? Today, the answer depends on the kind of stocks you own
. If you have consumer-oriented stocks such as United Spirits, Godrej Consumer or Zee Entertainment, you will have doubled your money in the last 19 months.
But if you hold industrial heavyweights such as BHEL, SAIL or Jindal Steel, your wealth would have halved in the same period.
Great divide
The Sensex has gained 21 per cent from its low in end-December 2011. But not many retail investors rode the bull because it was driven by a very select set of stocks.
The big divide in returns becomes clear when you classify the top-100 stocks on the basis of sectors.
The 40 companies that sell directly to the consumer in sectors such as FMCG, pharma, mobile services and carmakers added 50 per cent to their market value since end-2011.
But the 60 companies that make intermediate products for industry, in engineering, auto components and mining have gained just 3 per cent.
Who gained
Market experts say the shift from industrial to consumer stocks has been driven by a ‘flight to quality’. As corporate India struggled with poor growth and mounting debt, consumer companies were able to deliver predictable growth and attract new investments.
Foreign institutional investors (FIIs) made the most of this shift. Their average holding in the 40 leading consumer stocks was at 25.8 per cent by end-June 2013 against 22.5 per cent in December 2011.
Meanwhile, retail investors lost out. They held less than 10 per cent of the outstanding stock in consumer companies in June 2013, having sold them over the last two years.
Over-loved?
But after these lopsided gains, top consumer goods stocks now trade at an average price-earnings multiple of 38 times. The industrial stocks languish at a middling 12 times.
So is there a bubble waiting to pop? Many Indian fund managers believe so. Domestic mutual funds and insurance companies held a combined stake of under 4 per cent (each) in consumer stocks in June 2013 and have been pruning their holdings in recent months.
However, some global fund managers say that consumer stocks remain good bets. Bharat Shah, Executive Director of the ASK group, says: “Valuations of FMCG or pharmaceutical companies look high. But these businesses are champions in their field, have long-term capability to grow, and outstanding capital efficiency. If you are a patient, long-term investor, there is still opportunity to make 15-20 per cent returns from many of these businesses”.
‘bubble of opportunity’
Noting that factors such as cooling inflation and a good monsoon favour consumer spending, Ridham Desai and Nillai Shah of Morgan Stanley, recently wrote: “We think there is more upside before the consumer sector becomes overvalued, over-owned and over-loved.”
They, therefore, believe that consumer stocks still represent a ‘bubble of opportunity’.