Got out of GSK Consumer, got some more into sugar (Dhampur). GSK at 20x can go to a Colgate at 25x, but 25x can also come down to 20x. Arguing that a stock at 20x becomes 25x is basically a play on momentum, and right now FMCG stocks in India have lost that momentum.
Monsoons are a big issue. Between 2002 and 2004, FMCG growth flattened out as monsoons failed successively. While we are far away from that possibility this time, markets will no longer price these stocks to perfection as it has been doing of late. For food companies (esp. Britannia, whose biggest competitor Parle hasn't raised prices in years) it is a double whammy - growth might slow while raw material costs (esp sugar) go up.
I have traded in and out of sugar over the past few months, this time I will let this one run. My thesis is - all sugar stocks are going to get priced at peak multiples on peak earnings in the next 6-9 months. I did some work on the Indian sugar companies two years back, and from what I recall Dhampur is the most levered on debt/market cap basis. Right now, Dhampur is not more than 8x '10EPS - some will argue it is at 4x-5x '10 EPS. So, there is a potential double here after the double that has already happened.
What I am not sure of is - is it Indian sugar companies or Brazilian sugar companies (Cosan) that benefit the most. The deficit is in India - so the exporters to India (Brazil) should benefit more. That is something we will figure out only as time passes.
If Indian FMCG stocks lose their safe haven status, where will the long-only funds park their money if markets tank? Last year, FMCG stocks had negative beta for a time with the Sensex. My suspicion is - this time it might be tech (Infosys). Again that is something we will figure out only as time passes.
Also got out of Torrent Power when it spiked today. This was an indirect play on Adani Power IPO. This company doesn't talk to investors at all, and its financials look suspiciously clean for a power company that is on a capex spree. Maybe it runs up another 20% if Adani Power opens up with a bang. But the way Adani Enterprises has traded in past 2 weeks, I am not that sure.