Indian consumption sector’s defensive protect cracks — can this uncommon 20% slide unlock an entry level? Motilal Oswal weighs in
The consumption sector’s underperformance— practically 900-600 foundation factors beneath the Nifty100 — creates compelling entry factors in choose names, Motilal Oswal mentioned, highlighting Web page Industries, Devyani Worldwide, Metro Manufacturers, V-Mart, Lemon Tree Accommodations, LT Meals, and Cello World as key inventory picks with sturdy fundamentals and progress potential.
The brokerage famous that the present weak point marks a stark deviation from historic tendencies, the place consumption indices have usually outperformed the benchmark throughout sharp market corrections. Over the previous 20 years, the Nifty FMCG and Nifty Consumption indices have delivered common alphas of 10% and 5%, respectively, throughout 11 situations of a ten% or extra fall within the Nifty. The continued underperformance, Motilal Oswal mentioned, is essentially pushed by weak FY25 earnings, with its lined consumption universe anticipated to submit simply 2% year-on-year revenue progress.
“That is an aberration from historic tendencies, as consumption indices usually outperform the benchmark throughout phases of sharp market downturns,” the report mentioned.
Nonetheless, with fiscal and financial insurance policies now working in tandem to spice up demand and liquidity, and inflationary pressures easing, the outlook for the sector is bettering. The brokerage highlighted that India’s policymakers have acknowledged the weak consumption tendencies and are taking steps to revive mixture demand and shopper sentiment. “India’s policymakers have taken cognizance of weak consumption and are adjusting each fiscal and financial insurance policies to spice up mixture demand, liquidity, and sentiments,” Motilal Oswal mentioned.
The Rs 1 trillion in private tax reduction introduced within the FY26 Union Funds, together with numerous state-level earnings switch schemes, is anticipated to carry disposable incomes — a good portion of which might stream into consumption.On the financial entrance, the Reserve Financial institution of India has deployed a number of instruments to stimulate demand, together with a 50-basis level money reserve ratio minimize, a 25-basis level repo charge minimize, liquidity injections by way of open market operations, and overseas change swaps. In the meantime, inflationary pressures are easing, with February’s shopper value index cooling to three.6%. Motilal Oswal now expects FY25 CPI inflation at 4.7% year-on-year, down from 5.1% earlier, and tasks an additional moderation to three.8% in FY26.“As well as, inflationary pressures look like easing, which ought to seemingly assist in reversing among the price-induced demand contraction,” the report added.
The brokerage additionally pointed to sharp valuation corrections as creating engaging entry factors. The 12-month ahead price-to-earnings ratio for Motilal Oswal’s lined shopper and retail shares has declined from peaks of 54x and 109x in September 2024 to 39x and 67x, respectively. The market capitalization of those segments has fallen by 21% and 25% to Rs 26.6 trillion and Rs 9.9 trillion. Inside retail names, the divergence has been vital, with stock-specific declines starting from 9% to as a lot as 61%, whereas for shopper names, the vary has been 0% to 36%.
“Selective inventory choosing alternatives have emerged, as consumption indices have considerably underperformed over the previous six months,” the brokerage mentioned. Motilal Oswal mentioned it expects a beaten-down revenue base and sequential demand restoration to drive earnings progress in FY26, forecasting 13% year-on-year progress for shopper shares and 37% for retail. The sector might additionally profit from mild positioning, because it stays an underweight in lots of high home funds.
Additionally learn | ETMarkets Good Speak: India’s consumption increase – key sectors to observe, in accordance with Harshad Patil
(Disclaimer: Suggestions, ideas, views and opinions given by the specialists are their very own. These don’t signify the views of the Financial Occasions)
