Caught in the midst of a lack-of-demand-driven slowdown, consumption stocks have had a bumpy ride thus far in calendar year 2020 (CY2020). In the run-up to the Union Budget for 2020-21, stocks such as Avenue Supermarts, Bharti Airtel, Crompton Greaves Consumer Electricals, Relaxo Footwears, Dabur, and Hindustan Unilever (HUL) rallied between 7 and 20 per cent on hopes of a stimulus package to spur demand.
However, as the Budget dashed hopes of any immediate consumption revival, stocks, including ITC, Page Industries, Marico, Zee Entertainment, and Britannia Industries corrected up to 14 per cent between February 1 and 12. ITC, in particular, lost heavily on the government’s proposal to levy National calamity contingent duty (NCCD) on cigarettes.
Still, the proposals intended to double the farmers’ income, liberalise the agriculture sector, and double the milk processing capacity (to address rural distress), and income tax slabs rejig in a bid to increase the disposable income, may revive the consumption in the medium-to-long term, say analysts.
Rural economy-led recovery
Despite the near-term headwinds, analysts remain positive on the sector. Changes in the personal income-tax, hope of good monsoon and the on-going above normal Rabi acreage along with higher minimum support prices (MSP) are the key triggers analysts are betting on for the consumption revival.
“To increase rural disposable income and consumption, the focus has been on horticulture, fisheries and animal husbandry; agriculture credit, warehousing; and easy credit facility and facilitating export. All these measures aim to increase the income realisation from agriculture and allied activities,” wrote analysts at CARE Ratings.
Yet, a meaningful pickup is far away considering slowdown in other leading macro indicators like vehicle sales, index of industrial production (IIP), increase in inflation.
“Overall, we expect GDP growth to slide further to 4.3 per cent y-o-y in Q4 (from 4.5 per cent in Q3), before staging a weak recovery to 4.5 per cent in Q1 2020 (lowered from 4.7 per cent earlier). India is not directly exposed to the COVID-19 outbreak, but we are concerned that there will likely be indirect spillovers due to weaker global demand. For 2020, we expect GDP growth to remain below trend at 5.4 per cent in 2020, only marginally higher than 4.9 per cent in 2019,” wrote Sonal Varma, managing director and chief India economist at Nomura in a co-authored report with Aurodeep Nandi.
Where to invest?
In this backdrop, Vinay Pandit, head of institutional equities at India Nivesh remains bullish on the consumer durables segment (Voltas), autos (two-wheelers like Hero MotoCorp). He advises investors allocate 40-50 per cent of their portfolio to mid and large-cap companies, while the remaining 50 per cent should be allocated to quality small-caps such as V Mart Retail, VST Tillers, Minda Corp, Blue Star, Astra Microwave, JB Chemicals and TVS Srichakra.
Shirish Jaisingh Pardeshi, an analyst tracing the FMCG sector at Centrum Broking is positive on Asian Paints, Berger Paints, and Britannia which, he says, hold structural changes in the consumption patterns.
Government’s focus on doubling farmer income is likely to benefit HUL, ITC, Dabur, Marico, Asian Paints, analysts say, while the reduction in personal income-tax could benefit Trent, Aditya Birla Fashion, Jubilant FoodWorks, and Titan. That apart, the custom duty hike in footwear will benefit Bata and Relaxo Footwears, they add.