New Delhi : FMCG equity returns have consistently outperformed other sectors in India since the global financial crisis, alongside strong gains from IT and automobile stocks.
A core high-ROE cohort of FMCG, IT, oil and gas, and consumer durables makes up over one third of market cap and earns ROEs about 50 per cent above the rest.
FMCG stocks (under Nifty 50) recorded an average ROE of 35.5 per cent, and since the global financial crisis (GFC) around 2008-2009, the ROE for the sector stood at 45.4 per cent, DSP Mutual Fund said in a report.
IT (28.6 per cent), automobile and auto component (22.8 per cent), oil and gas (22.3 per cent), and financial services (15.9 per cent) were the other top sectors in terms of ROE since the GFC.
This stands as the source of India’s premium valuation over the long term. But since the pandemic (Covid-19), cyclicals such as metals, mining, and construction materials have rerated sharply despite weaker long-term ROEs, the report noted.
Meanwhile, earnings momentum in the high-ROE cohort has cooled, as revenue growth is slowing and margins look late-cycle.
Yet the market still trades at an overall premium, buoyed by cyclicals and lower-quality names.
“In such a scenario, bargains will be available, sooner or later, in the high-quality (high ROE) cohort when valuations cool,” the report highlighted.
According to the report, the key factors influencing gold returns are the US dollar, S&P 500, Federal Reserve policy rates, and consumer price inflation. In the 2000s, as well, the Gold rally was largely attributed to a weakening dollar.
Over the decades, these drivers have shifted in importance, with traditional financial variables such as the dollar, equities, and Fed rates often acting as headwinds to gold’s performance in recent years.
Despite these pressures, gold has remained resilient, supported by a structural surge in central bank demand since 2022, especially after the Russia-Ukraine war, where the US used its currency as an instrument to impose sanctions on other countries.
This led to the emergence of the ‘Gold Put’. Gold Put is the consistent, less price-sensitive, Gold hoarding by central banks of various countries as an alternative to US Treasuries, the report highlighted.
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