Stocks of fast-moving consumer goods companies, considered defensive stocks, are expected to continue falling next week as broader market is seen extending this week's rally following a slew of economic reforms introduced by the government. Last week, the government allowed up to 51% foreign direct investment in multi-brand retail, and relaxed local sourcing norms for above 51% FDI in single-brand retail. It also allowed foreign airlines to buy up to 49% equity in domestic carriers. The government also increased the FDI limit in broadcast services to 74%.
Leading FMCG shares such as Hindustan Unilever Ltd and ITC Ltd have been trading at multiple times their earnings per share for quite some time, so a correction was expected. The correction in FMCG shares value is expected to continue in the near future, despite the strong demand fundamentals supporting growth of companies in the sector. Over the past week, the BSE-FMCG index lost 2.1% in value, even as the broader indices gained nearly 2%.
