Defensives set to trump benchmarks for 4th year, FMCG, Health to outperform

Sep 24 2013, 14:53 IST
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Last year, healthcare shares gave positive returns in range of 25-35% and outperformed Sensex. (Reuters) Last year, healthcare shares gave positive returns in range of 25-35% and outperformed Sensex. (Reuters)
SummaryBSE FMCG index gained 17.22%, while BSE Healthcare has has risen almost 14%.

Even as financial and high-beta stocks have the Street's attention, their defensive counterparts have continued to be winning bets. Healthcare and fast-moving consumer goods companies are all set to outperform benchmark indices, BSE Sensex and NSE Nifty, for the fourth consecutive year in 2013 - Sun Pharmaceuticals, Lupin, Hindustan Unilever, Dabur India, Godrej Consumer eyed.

According to data available on Bloomberg, the BSE FMCG index has given returns of 17.22%, while the BSE Healthcare index has gained almost 14% in the current calendar year (CY13). BSE Sensex — having gained around 1,300 points or 6.9% since the start of September — has given returns of just 2.44% so far this calendar.


Last year, FMCG and healthcare stocks gave positive returns in the range of 25-35% and outperformed BSE Sensex, which gave positive returns of 21.33%. In the whole of 2011, the BSE FMCG index (+9.53%) and the BSE Healthcare index (-12.83%) managed to perform better than the BSE Sensex that lost nearly 25%.

Market experts said high volatility in equity markets, coupled with persistent uncertainty in the global economic environment and Indian government’s reluctance in pushing through reforms, forced investors to rush to defensive sectors like FMCG and pharmaceuticals.

Balaji Prasad, MD, Barlcays Capital, in his research note, said that global growth opportunity is still solid and the US will remain the driver of growth for the next 3-5 years. Moreover, pharma companies are also positive on the long-term potential in the Indian pharma market, despite the spate of changes in price regime, ban on drugs, curb on advertising and promotional spending, and clinical trial stringency.

In 2010, FMCG stocks (31.97%) and healthcare (34.19%) had again outperformed BSE Sensex, which gave modest returns of 17.43%. Experts also highlighted drug patent expiration in the US, which opened new avenues for Indian generic drugmakers. Drugmakers also benefitted from a depreciating Indian rupee.

For instance, Eli Lilly’s anxiety and depression drug Cymbalta, which last year generated $4.9 billion in sales for the company, is among the top 15 out of about 120 drugs that saw patents expire this year. This is followed by Purdue Pharma’s OxyContin, which sold $2.4 billion last year, and ends with Novartis osteoporosis treatment Reclast, which generated $612 million.

Pharmaceutical researcher Evaluate Pharma had projected around $290 billion of sales at risk from patent expirations between 2013 and 2018. “More than 70% of

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