Analysis of Select Fmcg Companies’ Stock Performance With Market (2)

8/11/2019 . Analysis of Select Fmcg Companies Stock Performance With Market (2)

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ANALYSIS OF SELECT FMCG COMPANIES STOCK PERFORMANCE WITH MARKET

Dr. G. Sudarsana Reddy

Associate ProfessorDepartment of Studies Research in Commerce, Dr. P. Sadananda Maiya Block, Tumkur University,Tumkur, Karnataka

ABSTRACT

Keywords: FMCG, Index, Market, Performance, Risk, Return, Stock.

Introduction:

Fast moving consumer goods (FMCG) sector in India is the fourth largest in the economy and has amarket size of US$13.1 billion. It has been predicted that the FMCG market will reach to US$ 33.4 billion by2015 from US $ billion 11.6 in 2003. Well-established distribution networks, as well as intense competition

between the organised and unorganized segments are the characteristics of this sector. The middle class and therural segments of the Indian population are the most promising market for FMCG and give brand makers theopportunity to convert them to branded products. India has low per capita consumption as well as low

penetration level, but the potential for growth is huge.The Indian economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization,

increased literacy levels, and rising per capita income. The big firms are growing bigger and small-timecompanies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brandsare owned by multinational companies (MNCs), and the balance by Indian companies. Fifteen companies ownthese 62 brands, and 27 of these are owned by Hindustan Unilever Limited (HUL). Pepsi is at third positionfollowed by Thumps-up, Britannia, Colgate, Nirma, Coca-Cola and Parle. Personal care, and soft drinks are thetwo biggest categories in FMCG and they account for 35 of the top 100 brands. FMCG industry provides a widerange of consumables. FMCG sector in India has a strong and competitive MNCs presence across the entirevalue chain as a result of this, investment in FMCG industry is also increasing, specifically in India.

Many FMCG players have increased their investments in modern retail. There is also greateracceptance from the consumer. The top ten Indian players alone are estimated to make an investment of $30

billion, while the rate of growth of FMCG modern retail is expected to rise from a current six per cent to 25 percent by 2018. Rising affluence and an increasing shift towards packaged and branded goods is one of the mainreasons for its growing affinity. Modern retail in FMCG is estimated to account for one-fourth of the totalFMCG sector, which is relatively large, given the high concentration of this sector in urban areas. The top 10Companies in FMCG Sector are Hindustan Unilever Limited (HUL), Indian Tobacco Company (ITC), NestlIndia, GCMMF (AMUL), Dabur India, Asian Paints (India), Cadbury India, Britannia Industries, Procter &Gamble Hygiene and Health Care, and Marico Industries. These companies are the leaders in their respectivesectors. The personal care category has the largest number of brands with 21, of which 11 are from HULaggregating Rs. 3,799 crore or 54 percent of the personal care category.

The food category has also seen innovations like softies in ice creams, chapattis by HUL, ready to eatrice by HUL and pizzas by both GCMMF and Godrej Pillsbury.

There is a huge growth potential for all the FMCG companies as the per capita consumption of almostall products in the country is amongst the lowest in the world. The demand could be increased further if these

companies can change the consumer's mindset and offer new generation products. Earlier, Indian consumerswere using non-branded apparel, but today, clothes of different brands are available and the same consumers arewilling to pay more for branded quality clothes. It is the quality, promotion and innovation of products, which

Investment in the equity is a very volatile and investors feel it is a very risky market. The fast

moving consumer goods stocks are considered as the safe bet because the hardly get influenced by the

market movement. But, there are instances fast moving consumer goods stock price also has fallen down

even though their financial performance is satisfactory. The study tries to know the factor influencingstock price and study the relation between FMCG stock price and index. The scope of the study has been

limited to the select three FMCG stocks - Britannia, Hindustan Unilever Limited (HUL) and Indian

Tobacco Company (ITC). The study covers one year period from 1st

January 2010 to 31st

December 2010.

The study uses analytical research method. The data collected was analysed with the help of mean, beta,

alpha, standard deviation and variance and co-variance. The study found that the share of Britannia,

HUL and ITC companies are favorable during the study period. While taking decision, the investor

should take relevant information. The analysis like fundamental and technical are very important to takebetter decision of buying and selling of shares.


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can drive many sectors. FMCG products are sold quickly at relatively low cost. Though the absolute profit madeon FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such

products can be large.Growth is also likely to come from consumer 'upgrading' in the matured product categories. To match

the customers expected to shift to processed and packaged food, India needs around US$ 28 billion ofinvestment in the food-processing industry. Automatic investment approval (including foreign technology

agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and OverseasCorporate Bodies (OCBs) investment, is allowed for most of the food processing sector.

FMCG stocks are now catching eye of investors for investing as best option in stock market. Thesestocks are now catching the eye of investors. Analysts and market experts are recommending to buy select

FMCG stocks, a move which is not just being considered as a safe ploy but also as a defensive strategy tocounter a volatile and uncertain market. The trend is visible on the bourses where leading FMCG counters haveoutperformed the overall market during the last few sessions. Take the case of MNC giant Hindustan Unilevers(HUL) stock has made its 52-week high at Rs. 267 on December 19, at a time when BSEs benchmark index,Sensex, was trading under the 10,000-mark (down by over 50 percent from its life-time high of 21,000 made inJanuary, 2008). Similarly, the scrip of another FMCG giant, Godrej Consumer is currently hovering near 52-week high of Rs 145. Market analysts who earlier stayed away from FMCG stocks are now taking a fresh lookat these rising scrips. Though, some reservations about the FMCG sector still persists, the analysts haveaccepted the safe nature of these stocks.

Fall in commodity prices (from crude, vegetable fat and food articles) is the main reason behind theoutperforming FMCG sector. It is an optimistic about the FMCG sector. Though the markets (at current level)have already discounted the positive impact of the fall in the raw material costs, and it is safe to invest when the

prices of the FMCG scrips fall.However, not all are convinced. Now-a-days, smaller players are eating into the business of big MNC

players in the FMCG sector. Biggies are therefore losing their market share. There is some momentary activityin FMCG stocks, which is a part of the defensive strategy adopted by the traders to restrict the downslide. Butthis trend will not prevail for a long time.

Statement of the Problem

Investment in the equity is a very volatile and investors feel it is a very risky market to invest as thereare ups and downs in the equity market. The volatility has influenced even FMCG stocks. The FMCG stock areconsidered as the safe bet because the hardly get influenced by the market movement. In the recent time the

FMCG stock price also has fallen down even though their financial performance is satisfactory. The problem iswhat factor influences the FMCG stock price? Is there any co-relation between FMCG stock price and index?Other issues are what is the impact of FII investment on the stocks? What environmental factor influences thestock price? These are some issues need to be studied in detail. Therefore, the present study.

Objectives of the Study

To evaluate the performance of select three FMCG stocks.

To make a comparative analysis of the three FMCG stocks with Nifty.

To find the co relation between the FMCG stocks and market index.

To understand the impact of external factors on FMCG stocks.

Scope of the Study

The scope of the study has been limited to the select three FMCG stocks - Britannia, HindustanUnilever Limited (HUL) and Indian Tobacco Company (ITC). The study covers one year period from1st January 2010 to 31st December 2010. Therefore, it excludes other companies and the period

before and after the study period.

Methodology

The study uses analytical research method. The study is mainly based on the secondary data and ituses one year data from 1st January 2010 to 31st December 2010. The secondary data was obtainedthrough internet, magazines, and journals. The market return is collected by taking Nifty as the benchmark index. Three companies stocks are selected for the study they are Britannia, HUL and ITC.

Stock returns and their respective closing prices are collected from the date 1st January 2010 to 31December 2010.

Plan of Analysis of Data

The data collected is analysed with the help of mean, beta, alpha, standard deviation and variance and

co-variance.Analysis and Interpretation

The data collected for the study analysed by using Return, Risk, Beta, Alpha and Correlation.


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Return:

Return is calculated by A.M. by using the following formula:

X = X / nWhere: X = Stock return, n= No. of observations

Return is calculated by the following formula

Stock Return = (Todays Stock Price Yesterdays Stock Price / Yesterdays Stock Price) 100

Table 1 Monthly Return of NSE and Britannia

Date NSE Return Britannia Return

Jan-2010 -0.37905 -0.34305

Feb-2010 0.047616 0.33353

Mar-2010 0.308901 -0.19751

Apr-2010 0.030739 0.174715

May-2010 -0.17399 0.155269

Jun-2010 0.163318 0.382108

Jul-2010 0.13359 0.279676

Aug-2010 0.006764 0.219571

Sep-2010 0.487063 -3.96151

Oct-2010 0.02864 -0.2667

Nov-2010 -0.1635 -0.11754

Dec-2010 0.23015 0.133971

Observation 12 12

Mean 0.096526 -0.26729

Table 1 clearly shows that in the month of September the returns of market (0.487063) and Britannia(-3.9615) are volatile. They move in opposite direction and their returns are all most equal in the month ofAugust. And in the other months, the returns of market and Britannia are less volatile when compared to themonth of September. In the month of May the market shows a negative return, and in the month of June againthe market returns increases. The September month returns have fallen down due to stock split on 8 thSeptember 2010.

Hindustan Unilever Limited (HUL)

Table 2 Monthly Returns of NSE and HUL

Date NSE Return HUL Return

Jan-2010 -0.37905 -0.47771

Feb-2010 0.047616 -0.11421

Mar-2010 0.308901 0.085753

Apr-2010 0.030739 0.017257

May-2010 -0.17399 -0.04127

Jun-2010 0.163318 0.559376

Jul-2010 0.13359 -0.27427

Aug-2010 0.006764 0.23543

Sep-2010 0.487063 0.753343Oct-2010 0.02864 -0.21145

Nov-2010 -0.1635 0.066528

Dec-2010 -0.1711 0.227092

Observation 12 12

Mean 0.096526 0.068823

The stock of the company has dynamic fluctuations during the year 2010 (Table 2) compare to themarginal fluctuations of the market. The drastic pitfalls are easily observed in January 2010 because ofdecrease in sales but the company has succeeded in maintaining the status quo during the year 2010 to someextent even compared with the company returns to the market returns. Thus, it can be said that the company isgradually and eventually improving both in the company returns and the market returns.

Indian Tobacco Company (ITC)


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Table 3 Monthly Returns of NSE and ITC

Date NSE Return ITC Return

Jan-2010 -0.37905 -0.06968

Feb-2010 0.047616 -0.35483

Mar-2010 0.308901 0.602717

Apr-2010 0.030739 0.058302

May-2010 -0.17399 0.058302Jun-2010 0.163318 0.355423

Jul-2010 0.204232 0.052423

Aug-2010 0.006764 -1.9818

Sep-2010 0.487063 0.436991

Oct-2010 0.02864 1.186465

Nov-2010 -0.1635 0.029406

Dec-2010 -0.1711 0.076442

TOTAL 0.389632 0.450161

Observation 12 12

Mean 0.096526

Both the NSE and ITC returns has avoided drastic fluctuations in the beginning of the financial year2010 (Table 3), but at the end of the year 2010 compared to the ITC return NSE has gone down. Thus, it canbe observed that both the market and ITC returns have seen major observable fluctuations in its returns in theyear 2010 and in the beginning of the year 2010.

Comparison of Return between the Select FMCG Companies

It can be seen from the Figure 1 that HUL has performed well in the quarters gaining more returnsfacing the usual small drops which is the common result for all the companies. Britannia though second afterHUL has fallen drastically at the end of year 2010 and ITC though was under-performing could pick up at theend. Britannia has got more return in the beginning but failed tremendously compared to other two companies.ITC though performed better than HUL could not beat the performance of HUL and Britannia at the end.

Thus. It can be said that on an overall HUL stand in a good position followed by ITC and leaving behindBritannia. ITC can be said the HUL has got more returns in the year 2010 followed by ITC and Britannia.

Risk

The risk associated with the stock and market returns is calculated by using Standard Deviation andvariance (statistical tools)

The standard deviation is calculated with the following formula:

SD= (X-X)2

/ n-1

Table 4 Standard Deviation of the Select Companies

Company Calculation SD

Britannia SD of Market 343.56 / 42-1 2.98


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SD of Britannia 119.63 / 42-1 1.70

HULSD of Market 343.56 / 42-1 6.13

SD HUL 119.635 / 42-1 4.82

ITC SD of Market 356.78 / 42-1 6.13

SD ITC 298.95 / 42-1 5.49

The standard deviation of all the three select companies Britannia, HUL, and ITC is (Table 4) lessthan market. So, the return of all the three companies is more consistent compared to market. The standarddeviation is more in ITC as compared to other companies, but its return is less. On the other hand, risk andreturn of the HUL is high.Beta

Beta is referred to as systematic risk to the market and the unsystematic risk. Beta is useful piece ofinformation both for individual stock as well as portfolios. It is a measure of risk and better used in theanalysis of portfolios. Beta is the slope of the characteristics of regression line and it describes the relationship

between the stocks return and the index returnsBeta is used for ascertain the stock relationship with market. The following formula used for

calculation. (Beta)=NXY-(X)(Y)/NX-(X)

Table 5 Beta of the Select Companies

Company Calculation (Beta)

Britannia(42*6.352) - (-56.2)(-0.87)

54(0.9069) - (-56.2)141.763 / 10038.29 0.0141

HUL(42*6.352) - (-56.2)(-0.87)

42(650.73) - (-58.7)43491 / 107848.31 0.4033

ITC(42*432.78) - (-58.7)(-13.52)

42 (2061) - (-58.7)

74552.62 / 107836 0.6913

All the sample companies stock returns was influenced by market return to a small extent as the

value is positive and less than one (Table 5).Table 5 indicates that one percent change in NSE Index return would cause 0.0.0141 percent change

in Britannia stock return. In the same way if one percent change in NSE index return would cause 0.4033percent change in HUL stock return. If one percent change in NSE index return would cause 0.6913 percentchange in ITC stock return.

Beta of the select companies stock is less than one and also less than 0.5 except ITC, so we can say

that the select stocks are less risky. Therefore, the stock is less volatile compared to market.

AlphaThe size of the alpha exhibits the stocks unsystematic return and its average return independent of

the markets return. If alpha gives a positive value, it is a healthy sign but alphas expected value is zero.

ALPHA () = Y ( * X)

Table 6 Alpha of the Select Companies

Company Calculation Alpha

Britannia -0.029-(0.0141 * (-1.04)) 0.0143

HUL 0.25-(0.4033 * (-1.09)) 0.68

ITC -0.12-(0.6913 * (-1.09)) 0.63

Alpha indicates that the stock return is independent of the market return. A positive value of alpha isa healthy sign and would yield profitable return.

As per Table 6 all the select companies stocks have got positive values. This indicates that all stocksare healthy and would yield profitable return. According portfolio theory, in a well diversified portfolio the

average value of alpha of all stocks turns out to be zero.

Correlation


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The Correlation of the stock and market indicate the extent which stock return is related to the marketreturn. The correlation is calculated by the following formula.

r = ____n XY (X) (Y)

nx2(X)

2 nY

2-(Y)

2

Table 9 Beta of the Select Companies

Company Calculation Correlation

Britannia42*6.352- (-56.2)x(-1.57)

0.895142*0.9069-(-56.2)

254*119.63-(-1.57)

2

HUL42*432.78-(-58.7)*(13.52)

0.51442*650.73-(-58.7)

2 42*1235-(13.52)

2

ITC

42*21.307(-58.7) (-6.5)

0.77842*101.96- (-58.7)

2 42*298.95-(-6.5)

2

The correlation co-efficient measures the nature and the extent of relationship between the stockmarket index return and the stock return in a particular period. Correlation co-efficient should lies between -1to +1. On an overall the Britannia shows more positive correlation. All the sample companies stock return hasgot positive co-relation. Thus, market index return and FMCG stock have positive co-relation.

Findings

From the above analysis and interpretation the following findings have drawn:

It is found through the comparative study of stock performance on NSE taking three companiesnamely Britannia, HUL and ITC the stocks of FMCG has not affected easily to the core with theother market fluctuations. HUL has performed positively in the NSE stock performance whencompared to ITC and Britannia.

The study of stock performance of FMCG becomes very difficult because of the unusual ups anddowns.

Britannia though one of the well known and leading company has seen with the negative returns inthe year 2010. It may be due to the fact that the share of the company costs too high and low

performance in the near future.

ITC is well known company which earns majority of its returns from tobacco, but the otherdiversification has not helped in its stock development in the market to increase its returns.

In all the sample companies the return is lass than market return.

ITC faces more risk factors. But, FMCGs in India till today has not faced the sudden fall in thedemand of its products, where it can sustain with the company returns.

It is clear that the NSE stock index in the select companies performing better compared to the

Company stock index.

Suggestions

It may be suggested that the sample companies shall concentrate on improving the company marginsrather than depending on market index.

ITC may issue the shares separately on its diversified units in order to increase returns on marketstocks.

Investors should go for long-term investment. Speculators and traders can take advantage of market volatility. Before investing, shareholders should use the variables like fundamental analysis, technical analysis,

to determine the stock price effectively. Shareholders should analyse the price earnings ratio net turnover, sensex and nifty and capitalization

rate from the previous years, which indicates further, increase or decrease in shares.

ConclusionIn the security market the prices of securities have more fluctuating over the 24 months, some of the

securities are bullish and others are bearish in trend. The share of Britannia, HUL and ITC companies are


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favorable, during the study period. While taking decision, the investor should take relevant information. Theanalysis like fundamental and technical are very important to take better decision of buying and selling ofshares.

To conclude, investing in the stock market is very risky. Short-term investment in the equity may beunfavorable but long-term investment will always favorable. So, investor has to prefer the long-terminvestment like equity stocks. Equity stocks are considered as risky securities but they give a very good return.

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Brown, K.C. Harlow, W.V. and Tinic, S.M. (1988), Risk Aversion, Uncertain Information andMarket Efficiency,Journal of Financial Economics,Vol. 22, No.1

Girard, E. and Sinha, A. (2008), Risk and Return in the Next Frontier. Journal of Emerging MarketFinance, Vol.7.

Grewal and Navjot Grewal (1984). Profitable Investment in Shares, Vision Books Pvt. Ltd. NewDelhi.

Jack C. Francis (1986). Investments -Analysis and Management, McGraw Hill, International Edition. Sivakumar, K. (1992). Is your company creating Wealth for you, The Hindu, Business Line, Daily,

Vol. 117, February 13.

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Websites

www.nseindia.com

www.bseindia.com

www.myiris.com

www.moneycontrol.com
http://www.bseindia.com/http://www.bseindia.com/http://www.bseindia.com/

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Analysis of Select Fmcg Companies’ Stock Performance With Market (2)