Kothari Pioneer FMCG: Hold

Recommendation: Hold

Aarati Krishnan

THE FMCG Fund from Kothari Pioneer has been less actively managed than the other schemes from this mutual fund. Launched when valuations for FMCG stocks were quite stiff, the fund has borne the brunt of the meltdown in FMCG valuations over the past year and a half.

Portfolio churning in this scheme has, therefore, been quite limited until recently. But, of late, the fund appears to have cashed in on the price action in select stocks in the sector to rejig its portfolio: The following changes have taken place in the portfolio between September 29 and October 31:

The fund has displayed a fairly good sense of timing. Since the stocks in the portfolio hold reasonable potential for steady and consistent performance, investors can hold for the present. However, investors may allocate only a small portion of the portfolio to this fund. Though FMCG stocks would be good defensive investment plays, they are unlikely to deliver impressive capital appreciation in the medium term from current valuation levels.

Holdings enhanced: SmithKline Beecham Consumer Healthcare has been the only stock in the portfolio where the fund actually added to its holdings. The fund added 20,230 shares during the month.

Holdings reduced: The fund pruned its holdings in Hindustan Lever, Reckitt and Colman and Cadbury India. The fund sold 22,971 shares of Hindustan Lever due to concerns about sluggish topline growth. The fund sold 16,633 shares in Reckitt & Colman and 8,750 shares in Cadbury India. Since both stocks saw an appreciation in price during the period, the fund appears to have used the uptrend to book profits.

Holdings sold out: The fund completely exited its holdings in Indian Shaving Products and Zee Telefilms. The latter was part of the portfolio since inception. But the fund has been gradually reducing its positions in this stock over the past quarter, due to concerns about intensifying competition in its main line of business. The company reported poor performance this quarter. In Indian Shaving Products, uncertainties relating to the merger of two loss-making subsidiaries, which is expected to take effect in the final quarter of 2000 has trimmed valuation for the stock on the bourses.

Fund view: In its October newsletter, the fund stated that prospects for companies such as Britannia and Nestle, which target urban markets, remained reasonably good, though the slowing topline growth for Hindustan Lever was a concern, since the stock was a barometer for the sector as a whole. The fund has said it believes current valuations were not excessive and hold good potential in the medium to long term.