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We see stocks of mid-cap fast moving consumer goods companies rising on value buying as stocks of large cap companies in the FMCG space have turned expensive.
Stocks of companies like ITC, Nestle and GSK Consumer are trading at almost 30-35 times their two year forward earnings, while those of companies like Dabur, Marico and Tata Global are trading at 25-26 times two year forward earnings, valuation of mid-cap companies are likely to rise and catch up with their larger peers.
Many large FMCG companies like Hindustan Unilever, Dabur and Marico get 30-50% of their revenues from the rural market, and a normal and timely monsoon will ensure that rural demand for FMCG products remains strong, helping them to achieve robust growth in sales volumes, which in-turn will justify the high valuations that FMCG stocks command.
