On June 5, FMCG stocks continued to rise as investors looked for safer options after unexpected election results. The results showed that the ruling government might not perform as well as predicted, with BJP likely needing to form a coalition.
As a result, the Nifty FMCG index jumped nearly 6%, extending previous gains. Top gainers included Emami, Hindustan Unilever, Dabur, and Tata Consumer Products, each rising around 10% in early trading.
Other companies like Bikaji Foods International, Colgate Palmolive, Marico, Britannia, and Godrej Consumer Products also saw gains of up to 7%.
Analysts believe increased government spending could boost rural areas and consumption, benefiting FMCG and retail companies. HDFC Securities noted that this will help FMCG and retail sectors grow.
Given the market’s expected volatility, analysts advise investors to be cautious and focus on defensive sectors like FMCG, Telecom, and Pharma. Prashanth Tapse from Mehta Equities Ltd. echoed this sentiment.
Bernstein, a foreign brokerage, suggested that consumption stocks might perform better if the opposition gains favor. If the NDA wins over 340 seats, rural consumption recovery may be slow but steady. However, if the NDA doesn’t perform well, rural consumption is expected to recover quickly, putting more money in the hands of the poor.
Emkay Global, a domestic brokerage, also sees positive signs for the consumption sector, particularly with a good monsoon improving rural consumption. They expect inflation to cool down, leading to a revival in overall consumption.
Emkay predicts high-single-digit growth for FY25, with seasonal portfolios like Dabur, Emami, and GCPL performing better. They upgraded their rating on HUL to ‘buy’ with a target price of Rs 2,900 per share and Nestle India to ‘add’. However, they downgraded ITC from ‘buy’ to ‘add’.
JM Financial also prefers the consumer sector, expecting it to benefit from better consumption demand due to a normal monsoon and any populist measures.
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