FMCG, PSU banks, pharma sectors underperform Nifty in FY21

FY21: The financial year 2021 (FY21) is ending on a positive note for the Indian equity market as all sectoral indices. Along with the benchmarks, looks set to end in the green for the year.

Moreover, in FY21 so far Nifty has jumped 73 percent, while the Sensex gained 70 percent even as COVID-19 continues to be a major threat. While metal, auto, and IT sectors have taken the front seats in terms of gains, FNCG, PSU bank, and pharma indices have underperformed.

On the other side, against a 73 percent rise in the Nifty in FY21, Nifty FMCG rose 27 percent, PSU bank 61 percent, and Nifty pharma 70 percent. Nifty financial services gained 72 percent during the period.

                      SECTORS THAT UNDERPERFORMED

                                                         NIFTY50 IN FY21

What led to the underperformance;   

PSU bank stocks (PSBs) had not been doing well since the beginning of 2020 and saw a significant correction later. Vishal Balabhadruni, the Senior Research Analyst at CapitalVia Global Research, said FY21 started on a negative note for PSBs.

Owing to RBI’s intervention and split open interest rates, the segment saw some gains. However, with the introduction of the moratorium, the gloomy situation persisted. While the concern over the NPAs (non-performing assets) and the Moratorium period can be said to be the main reasons that weighed on PSBs, Balabhadruni said.

However, the pharma sector performed significantly well in the first half of it failed to keep up the momentum in the next quarters. Due to inelastic growth in demand and supply and with fewer cases of acute diseases, OPDs, and elective surgeries, the growth is expected to choppy, he said.

The FMCG sector experienced disruption in a real sense after the outbreak of COVID-19. Health, immunity, etc became the keywords after the pandemic outbreak. For standard demand and consumer preferences, the companies had to come up with new ideas and approaches. Which may have affected the optimal product mixes of the firms, said Balabhadruni.

The road ahead;

Balabhadruni believes the PSU space may progress with mixed notes during the government’s decision to privatize two banks and recapitalization these PSBs. The decision of the government to not privatize SBI, PNB, Union Bank, Canara Bank, Bank of Baroda, Indian bank has brought certain positivity.

Moreover, the pharma sector has a good amount of opportunities with the increased focus of government on healthcare in Budget 2021, and with production at nearly 90 percent of pre-pandemic levels. There are expectations that margins may again be as of pre-COVID levels he said. The FMCG sector now sees opportunity in rural and semi-urban areas as the preferences of these areas have changed.

PSU bank stock moves will depend on the progress of privatization and the pace of creation of fresh stressed assets. Healthcare stocks will depend on micro developments in the respective companies, Jasani said. With a V – shape recovery expected in the economy, sectors like financials, financial services, and manufacturing are gaining more attraction rather than the defensive sector like FMCG.

In the FMCG space, stocks like HUL and ITC look good at the current levels as the demerger of ITC is expected in the upcoming months. Even stocks like Marico, Dabur, and Godrej Consumer Products are good buys at the current levels.