Where will HUL investors plough their profits? - Business Standard

The just concluded open offer for Hindustan Unilever (HUL) could translate into big gains for mid-cap and second tier FMCG stocks. A significant chunk of nearly Rs 20,000 crore that HUL investors earned through the open offer is likely to be re-invested in equities and mostly into second tier FMCG stocks given market fancy for consumption related stocks. "The (HUL investors) money belongs to equities and ideally it should return to the market in some manner or the other," says A Balasubramanian, CEO Birla Sun Life Asset Management Company. Experts say that investment in mid-caps is no-brainer given their recent performance and the valuation gap between HUL and others in the sector. "Many second tier stocks in the sectors are trading at huge discount to what Unilever paid for in the HUL open offer. This provides a great opportunity for ex-HUL investors to re-jig their portfolio in the favour of top performing mid-cap stocks in the sector," says Devang Mehta, senior VP & head equities sales, Anand Rathi Securities. His top picks are Bajaj Corp, Colgate Palmolive and Pidilite Industries. Historically Hindustan Unilever and ITC have been the preferred pick in the fast moving consumer goods (FMCG) space given their large market capitalisation and inclusion in benchmark indices such as Sensex and Nifty. This is especially true for large institutional investors who have to mindful of the impact cost of their investment and low risk quotient. Investment in these two companies was a no-nonsense way to get a slice of the India consumption story. The open offer has greatly reduced the options for investors now. Post the open offer, the free float in HUL is down to 32.7% from 47.3% earlier reducing the stock ability to absorb fresh inflows. "The reduction in HUL free float has surely reduced the stock ability to absorb fresh inflows. This may force many investors and fund managers to re-adjust their portfolio and look for alternatives if they wish to maintain their exposure to FMCG sector at earlier level," says Swati Kulkarni, vice president & fund manager equity at UTI Mutual Fund. This is likely to benefit leading mid-cap and non-index FMCG stocks especially those with the upside potential. "Money will flows to those midcaps which can match the risk-return profile and upside potential provided by the HUL," she adds. ITC could also gain as it the most valuable stock in the sector with the highest free float among all index stocks. Index funds will also have to rejig their portfolio as the open offer has cut the HUL weightage in Sensex and Nifty and increased the weightages of other stocks. Index funds would now have to re-adjust their portfolio accordingly. There is also a possibility of investors cutting their equity exposure or moving their money to large cap stocks in other defensive sectors such as pharma and IT. "Mid-caps are always riskier than large cap and index stocks and it may not suit many HUL investors especially if had been holding it for a long-time. They would prefer a similar company in other sectors or else would park their money in other assets such as fixed deposits," says Apurva Shah, Head - Investment Research at BNP Paribas Asset Management Company. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHFOgsBv0stG0S51MYWwaHmYP4C1w&url=http://www.business-standard.com/article/companies/where-will-hul-investors-plough-their-profits-113070500848_1.html

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