Defensive darlings no more? ICICI flags collapse in profit share, warns of pricey valuations

Defensive sectors like FMCG, IT, and healthcare are losing ground fast, with ICICI Securities reporting their lowest market cap share in over a decade—even as they remain priced at a steep premium.

ICICI Securities has flagged a major market rotation: the combined market cap of defensive sectors—FMCG, IT, and healthcare—has slipped to just 20%, down from 30% in 2020, marking their weakest showing since 2011. This decline reflects shifting investor sentiment away from stability toward growth and cyclical exposure.

The drop isn’t just in market cap. Their profit pool share has collapsed to 16%, down from a dominant 40% in FY21. And it's set to fall further—to 14% within two years, according to projections.

Yet, these sectors still command steep valuations. Defensive stocks trade at a trailing P/E of 32x, well above the broader market’s 25x. FMCG leads with a sky-high 42x, healthcare at 39x, and IT—though weaker—still trades at 24x.

The IT sector's decline is particularly notable. For the first time since FY13, its market cap share has fallen below its profit share—a clear sign of cooling investor enthusiasm amid margin pressures and weak deal flow.

Meanwhile, cyclical sectors are seeing a re-rating. Discretionary consumption's P/B ratio has more than doubled—from 2.6 in 2020 to 5.9 now. Industrials have jumped from 1.5 to 5.4 in the same period. This sharp repricing suggests investors are chasing growth, betting on capex cycles, consumption rebound, and earnings upgrades.

The shift from defensives to cyclicals could reshape portfolio strategies. While defensives still offer perceived safety, their slowing earnings momentum and stretched valuations may limit upside. Cyclicals, despite higher volatility, are attracting capital with stronger earnings visibility.

Investors now face a critical choice: stick with high-P/E stability or rotate into growth-led sectors with expanding profitability.