Current FMCG Valuations Do Not Factor In Future Challenges: Envision Capital’s Nilesh Shah
The long-term structural change might create metamorphosis in the entire FMCG space, says Envision Capital’s Nilesh Shah.
Even as investors remain bullish on consumer goods makers amid Covid-19 pandemic, Envision Capital’s Nilesh Shah said such stocks were very expensive and would only become attractive at lower valuations.
The current valuations are not supportive and don’t factor in the kind of challenges the FMCG sector might face going forward, the managing director and chief executive officer at the investment management firm told BloombergQuint. “As you see the retail companies mix technology and the fact that they can get the kiranas, groceries, stores, etc., under their fold, the terms of trade will shift faster than we think.”
“This is a very long-term structural change that is going to create metamorphosis in the entire space, investors need to be cognizant of the challenges they could face in the long term. One has to be very careful and wait for attractive levels before buying.”
The novel coronavirus outbreak has forced India to put its 1.3 billion citizens under the world’s strictest lockdown, shutting businesses temporarily. Only sale of essential goods are allowed.
Key Highlights From The Conversation
- The broad set of assumptions Shah is working with are: first thing to figure out is how liquid the company is; second is to look how much catch up can happen in the second half since first half is going to be very challenging; and third, normalcy in business and growth will return in FY22.
- Second half is dependent on some factors like some bit of buoyancy in the rural economy, fall in crude oil prices will benefit India and from the end of first half we will see some stimulus from the government.
- Amazon and Future Retail deal is a win-win situation for the foreseeable future or even for next few decades. Indian retail is arguably one of the best opportunities globally.
- Non-banking financial institutions will be most stressed and it’s going to be hard for them to get back to the erstwhile glory.
- Top five-six banks may not have a problem and will continue to do well when economy normalises.
- In terms of the leadership in the market, financials form a very large portion, so it’s premature to say financials will not be able to lead the rally.
- One should look beyond banks into life insurance, general insurance and asset management companies. Who knows, maybe going forward, it’s quite possible that some of the businesses in these spaces could lead the banks. It’s very important to be in some of these names in the financial pack.
WATCH | FMCG Stocks Are Very Expensive: Envision Capital’s Nilesh Shah