This sector has outperformed in CORONA Correction

The impact of CORONA outbreak started showing its effect on the Indian Stock Market since the last week of February 2020 . We saw a sharp fall in Nifty 50 in March preceded by mild correction in February. The Nifty 50 index fell from the January high of 12400 to touch 7500 in March (approx 40%).

Figure 1: Daily Chart of Nifty 50

In this steep downfall of the index and consequently shutting down of the economy, there was one sector which got least impacted - the Fast Moving Consumer Goods (FMCG) sector.

The Indian government had announced lock-down in the country allowing only essential services to run. This situation demanded continuous supply of our daily use essential items which if disrupted could cause panic.

Some of the top FMCG companies listed in Indian stock exchanges are:

Nestle, Hindustan Unilever, Britannia, Colgate, Dabur, Marico, P&G

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Let's see how these stocks had performed during March and April lock-down

Nestle India

Figure 2: Daily Chart of NESTLEIND

You can observe here that correction in Nestle started little late than Nifty and the impact of correction, 22% (panic selling to be in cash) was approx 0.5x as compared to Nifty, 40%. In the last week of March, we saw a bounce back (32%) in Nifty from low level of 7500 to reach 9800 in the last week of April. In the same period, Nestle bounced back with 45% return from its low level of 12500 to touch 18200.

Hindustan Unilever

Figure 3: Daily Chart of HINDUNILVR

The levels of correction (22%) and bounce back (44%) were almost same as compared to Nestle. There was a sharp fall after touching the high level of 2600.

Britannia

Figure 4: Daily chart of BRITANNIA

Overall, the price performance of Britannia was similar to other FMCG stocks discussed in the post. However, it went through a larger correction of 33% as compared to 22% in the other two. The bounce back % was also high at 57% as compared to approx 45% of the other two.

If we take the ratio of bounce back to correction it comes as 2:1 for all the three major FMCG stocks discussed here. The same ratio calculated for Nifty was 4:5.

When Index falls, FMCG stocks fall less.
When Index bounces, FMCG stocks bounce more. 

It would be interesting for you to explore what had happened in other FMCG stocks mentioned above. Try to observe their charts and note the correction and bounce back levels.

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Conclusion

Next time you see a major fall in the Index, consider investing in good FMCG companies as they are considered a safe heaven in a falling market. There is one more sector which had defied gravity and showed a sharper bounce back - the Pharma sector....

(to be discussed in the next blog)

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