Are FMCG stocks the best today?

The market is on a rocky terrain, which has made it volatile and uncertain. These are times when majority of the investors want to know which sector is best to invest in, and will provide sure shot gains.

According to a recent report by SSKI research, FMCG is the sector to bet on. The report highlights the fact that the FMCG sector, which was initially witnessing single digit growth from FY00 to FY05 has seen strong double digit growth in FY06.

Since consumer spending and disposable incomes in India are on the rise, FMCG is one sector, which will be a definite beneficiary of this.

The report also reflects on the fact that the inorganic route to power will be the next round of growth. It says that high cash generation from the core business and no major capex plans on the cards has prompted FMCG players to take the inorganic route. Companies like Dabur, GCPL, Marico, Tata Tea, etc are targeting to add at least 10%

to their topline annually through the inorganic route.

Also few businesses are now on a structural upward move. In the current context of growth being led by 'uptrading', SSKI believes that a structural upward move should be looked at in certain businesses.

For example; ITC's core cigarettes portfolio, Nestlé's urbanized product line, and GCPL's inorganic appetite and a burgeoning hair colour business is what SSKI would like to bet on.

Given the high earnings visibility, they believe the consumer space will continue to command strong valuations. They have factored in the overall cash on book and potential utilization of the same in this report.

Their top picks are ITC, Tata Tea, GCPL and Nestle.

(Source: SSKI research report)

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