India consumer stocks turn sour as demand cools

Bloomberg

Producers of household items have been India’s best stock market bets for years. But the consumption slowdown in the world’s fastest-growing major economy is rubbing the sheen off these shares.
The 74-member S&P BSE Fast-Moving Consumer Goods Index, which has had only one down year since 2006, has bucked the gains in the nation’s benchmark measure. And some of the biggest names in the gauge have accumulated double-digit losses five months into the year.
India’s consumption engine is sputtering as the cash crunch caused by the crisis in the shadow-banking sector has curbed spending even on staples after hurting demand for cars and homes. Hindustan Unilever Ltd, whose soaps and detergents are used by nine out of 10 Indian households, in an analysts call pinned the deceleration on weak rural demand and said it is unable to say when the buoyancy of the past would return.
“When a generally-measured management like Hindustan Unilever’s uses the term ‘recession’ in its comments in the post-result presser, it generally isn’t a one-quarter blip,” analysts led by Rohit Chordia at Kotak Institutional Equity Research wrote in a note.
The company’s volume growth slowed to 7 percent in the March quarter after five straight quarters of double-digit expansion. Growth for Dabur India Ltd during the period was 4.3 percent compared with about 8 percent a year ago. Britannia Industries Ltd grew 7 percent, versus 11 percent, and Godrej Consumer Products Ltd posted a 1 percent increase in its domestic branded-business volumes.
The market is repricing the growth outlook. Hindustan Unilever has declined 7.2 percent in 2019, Godrej Consumer 21.5 percent, Britannia 15 percent and Dabur 14.8 percent.
The S&P BSE Fast-Moving Consumer Index trades at a
12-month blended forward price-to-earning of about 32, higher than its five-year mean, signalling potential for further drop in values.
The gauge lost 0.7 percent to close at the lowest level since March 1.
“The sector isn’t a bad place to be in but the high price-earnings ratios are a challenge,” Pashupati Advani, president of Advani Group, said by phone. “The explosive growth we saw in the past has disappeared. It is difficult to say when the economy will revive.”
The slowdown may not be cyclical, according to a separate report by Kotak Institutional Equities, which cites insufficient income growth as the
reason for the weak demand.