Indian equity indices BSE Sensex and NSE Nifty 50 displayed heightened volatility in Wednesday’s trading session after the election results. The stock market soared higher as allies asserted support to PM Modi-led BJP for the next government formation.
The Nifty fast-moving consumer goods (FMCG) index surged around 5 percent, continuing its upward momentum for the second consecutive day. Shares like Emami, Hindustan Unilever, Dabur, and Tata Consumer Products were the top gainers, rising around 10 percent in early deals. Over the past year, the FMCG index has seen a remarkable gain of nearly 15 percent.
Following the disappointing election results, with all sectoral indices facing substantial declines, investors shifted towards defensive positions, opting for select fast-moving consumer goods (FMCG) and automotive stocks.
In addition, a revival in the rural economy, anticipation of a favourable monsoon, and renewed expectations of welfare reforms all contributed to the demand for these stocks.
Bernstein, one of the Foreign brokerage firms had suggested that consumption stocks might see a more favourable outcome if the opposition stocks gained favour, at least in the near term. However, Bernstein stated that, in the long term, macro fundamentals will take over, leading to an exponential rise in manufacturing growth.
Meanwhile, Emkay Global, a leading brokerage firm, sees tailwinds in the consumption sector, with HUL, Dabur India, Bikaji Foods, and Honasa Consumer as its top performers.
Emkay expects a resurgence in rural consumption, driven by an improving monsoon season and the government’s potential shift towards pro-consumption policies. The recovery in the rural sector on an improving monsoon was already poised to boost consumption, but the government’s likely policy pivot to pro-consumption initiatives will add further legs to consumption stocks.
Furthermore, the brokerage said, the FMCG sector has been navigating a “slow and volatile lane” due to controlled populist measures and macroeconomic headwinds. However, with inflation cooling down and consumption expected to revive, Emkay Global anticipates high-single-digit growth for the sector in FY25.
As a result, analysts at the brokerage firm expect players having seasonal portfolio like Dabur, Emami, and Godrej Consumer Product Limited to have better performance with seasonal support. The FMCG sector valuation is likely to see a re-rating with the emergence of tailwinds that align well with the enhancement in company execution.
Additionally, Emkay expects the upcoming Union Budget to potentially boost consumption prospects, which could further fuel the growth of consumption stocks.
For the above-mentioned reasons, Emkay has upgraded its rating on HUL from ‘Add’ to ‘Buy’, with a target price of Rs. 2,900 per share, indicating a potential upside of around 12 percent. Further, the brokerage firm, also upgraded Nestle India from ‘reduce’ to ‘add’.
Moreover, Jefferies, an international brokerage firm, has double-graded the FMCG stock to buy from hold. The brokerage has raised the target to Rs 2,950 from Rs 2,530, indicating an upside potential of 13 percent. And stated that HUL offers a good proxy to participate in the likely uptick in rural.
The foreign broker noted that the stock has shown underperformance over the past five years, with its valuation hovering around the five-year average. Additionally, it revised upwards the EPS estimates by 1-3 percent.
Written By Vaibhav Patil
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