Back to front? Green shoots in defensive sectors signal potential recovery

Weak demand, AI-led growth concerns and US export headwinds weigh on defensive stocks, while valuation moderation signals potential opportunities

Defensive sectors such as fast-moving consumer goods (FMCG), information technology (IT) services, and pharmaceuticals usually provide stability to equity portfolios during periods of price volatility and broader market selloffs. However, over the past two years, these sectors have been on the back foot, leading the decline in the broader market.

 

According to analysts, the decline in stocks in these sectors was driven by factors such as weak consumer demand and inflationary pressures in FMCG, growth headwinds from artificial intelligence in IT services, and export-related challenges in the US market for pharmaceutical companies. Their stock performance was also weighed down by record equity valuations at the end of calendar year 2024 (CY24).

 

The Nifty IT Index is down 16.8 per cent in CY26 so far, compared with a 12.4 per cent decline in the Nifty 50. This follows a 12.6 per cent fall in the IT index in CY25, even as the Nifty 50 rose 10.5 per cent. The Nifty FMCG Index, meanwhile, is down 20.7 per cent in CY26 so far, following a 2.3 per cent decline in CY25. 

 

There are, however, early signs of a turnaround in defensive stocks, with the Nifty Pharma rallying 12.7 per cent year-to-date after declining 2.9 per cent in CY25. IT stocks, too, have rallied over the past two weeks. The Nifty IT Index is up 13.8 per cent month-to-date in October, compared with a 1.2 per cent rise in the Nifty 50 over the same period.

 

Analysts attribute the potential turnaround to the valuation de-rating of defensive stocks over the past two years, which has significantly narrowed their valuation premium over the Nifty 50 and the BSE Sensex. In fact, most IT services companies now trade at lower trailing price-to-earnings multiples than the benchmark indices, potentially improving the risk-reward proposition for long-term investors. Moderating valuations, coupled with cash-rich and debt-free balance sheets, make leading defensive stocks attractive for investors looking to accumulate shares.

 

Here is a look at 10 stocks across these three defensive sectors that offer a balance of reasonable valuations, near- and long-term earnings growth potential, high return on equity and relatively low valuation multiples.

 

Tata Consultancy Services 

• Tata Consultancy Services (TCS) continues to trade at a big discount to its historical valuation despite recent rally
• Its current trailing price-to-earnings (P/E) at 16.3x is still nearly 39 per cent lower than 5-year average earnings multiple
• TCS’s net sales were up 11.2 per cent year-on-year (Y-o-Y) while adjusted net profit was up 7.4 per cent Y-o-Y in Q2FY27 in line with the growth seen in previous two quarters
• However, the company’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margins was up 60 basis points in Q2FY27 over Q2FY26 compared to margin contraction in Q1FY27
• TCS claimed that artificial intelligence (AI) revenue was up 19.2 per cent quarter-on-quarter (Q-o-Q) to $3.1 billion on an annualised basis, crossing 10 per cent of total revenue
• Analysts at Motilal Oswal maintain a “buy” rating though the stock price has already crossed the target price 

 

Infosys 

 

• Infosys share price is up 16.8 per cent month-to-date in October but it is still trading at nearly 40 per cent discount to its 5-year average valuation
• The stock is constant currency trading at a price-to-earnings (P/E) of 15.3x compared to its 5-year average earnings multiple of 25.4x
• The company is yet to declare its result for Q2FY27 but brokerages expect numbers to be on expected lines with a year-on-year (Y-o-Y) decline in earnings before interest, taxes, depreciation and amortisation (Ebitda) margins
• Analysts at HDFC Securities also expect Infosys to cut its revenue growth in constant current for FY27E by 50 basis points to 2-3 per cent (from 2-3.5 per cent)
• The firm’s net sales were up 14 per cent Y-o-Y in Q1FY27, growing at the fastest pace in the last four quarters
• Infosys adjusted net profit was up 12.3 per cent Y-o-Y in Q1FY27 while Ebitda margin was down 27 basis points Y-o-Y in the quarter

 

LTM 

 

• Information technology (IT) major LTM is currently trading at trailing price-to-earnings (P/E) of 24.1x, 28 per cent discount to its 5-year average earnings multiple of 33.6x
• The company’s net sales were up 13.6 per cent year-on-year (Y-o-Y) in Q2FY27, growing at the slowest pace in the last three quarters
• The company's adjusted net profit was down 0.2 per cent Y-o-Y, its worst show in the last three quarters
• Management expects sequential growth to accelerate in H2FY27, following temporary weakness in technology and Saudi Arabia related business
• Its earnings before interest, taxes, depreciation and amortisation (Ebitda) margins were down nearly 300 basis points Y-o-Y in Q2FY27 to one of the lowest levels in the last 5 years
• Analysts at JM Financial see limited upside in the stock, given its high valuation and current growth profile

 

Hindustan Unilever 

 

• Fast-moving consumer goods (FMCG) major Hindustan Unilever Ltd (HUL) stock price continues to languish tracking its industry peers
• HUL stock price is down 18.2 per cent year-to-date in CY26 and is up 0.8 per cent month-to-date in October
• At its current stock price its trading at nearly 26 per cent discount its 5-year average valuation, biggest in many years
• Analysts at HDFC Securities expect HUL to report low double-digit growth in net sales in Q2FY27 aided by low base last year but earnings before interest, taxes, depreciation and amortisation (Ebitda) margins likely to contract from higher commodity prices
• HUL net sales was up 10.3 per cent year-on-year (Y-o-Y) in Q1FY27, fastest growth in last four quarters
• Its adjusted net profit was however down 3.7 per cent Y-o-Y in Q1FY27 as Ebitda margins shrunk to 7-year low
• Brokerages see limited upside in the stock price given likely pressure on earnings and margins in forthcoming quarters

 

Nestlé India 

 

• Food processing major Nestlé India saw a decline in its share price in October after a relatively stable show during Jan-Sep period
• Nestlé share price is down 3.4 per cent month-to date in October against a 1.7 per cent decline in the first nine-months of CY26
• As a result there has been a valuation de-rating and it is currently trading at 22 per cent discount to its 5-year average price-to earnings (P/E) multiple of 75.5x
• Nestlé net sales were up 20.5 per cent year-on-year (Y-o-Y) while its adjusted net profit was up 36.2 per cent Y-o-Y in Q1FY27 — both among the fastest in fast-moving consumer goods (FMCG) space
• The company’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margins were up nearly 200 basis points Y-o-Y in Q1FY27 despite inflationary pressures
• Analysts at HDFC Securities have upgraded the stock to buy and see 19 per cent upside on lower valuation and better earnings growth

 

Lupin 

 

• Among the companies covered, Lupin is the most attractively valued, with its current trailing valuations at a 70 per cent discount to its five-year average
• The pharma major, according to PL Capital, saw a turna¬round in profitability over the last 3 years with a 5 times jump in operating profit during FY23-26. This was aided by better product mix, continued niche launches in the US, clearance from USFDA for its facilities, domestic formulations regaining momentum and cost optimisation measures
• The company continues to outperform the Indian pharma market. Chronic therapies, which saw its revenue contribution rise to 65.7 per cent from 63.9 per cent a year ago, grew 18.9 per cent on a moving annual total (MAT) basis led by strong cardiac and anti-diabetic growth. In comparison, acute therapies MAT growth was 9.9 per cent
• This mix, the highest among top firms, combined with volume-led growth, provides good visibility on the sustainability of Lupin’s domestic performance, according to Equirus Securities

 

United Spirits 

 

• The stock of India’s leading alcohol beverage company is flattish over the past year and trades at a 24 per cent discount to its five-year average valuation
• A subsidiary of global beverage major Diageo, United Spirits is likely to benefit from the strong long term outlook for the Indian spirits industry
• and leverage its parent’s global marquee portfolio in premium categories
• Management remains focused on accelerating premiumisation through broader category participation and innovation-led brand investments
• Following its strategic reduction in the popular segment, the firm has delivered 7 per cent revenue growth over the last three years, with the Prestige & Above segment — which contributes 60 per cent of revenue growing at a robust 14 per cent annually
• In the medium term, HDFC Securities expects regulatory relaxation to support faster volume growth in the lower to mid prestige segments

 

Britannia Industries 

 

• Biscuits, bakery and dairy products major’s stock is down 23 per cent over the past year and valuations are at a 22 per cent discount to its five-year average. Its returns ratios are second only to Nestlé on this list
• The company posted a steady performance in the June quarter aided by volume growth. Despite input cost pressures from the West Asia conflict, margins remained resilient
• Britannia, according to HDFC Securities, appears to have moved past its rough patch, with the new leadership revamping the execution team and sharpening its focus on reigniting growth across multiple fronts
• Growth trends across channels and states continue to improve, translating into sequential market share gain
•  The company remains confident in navigating geopolitical uncertainties, with strong Q1 demand providing a healthy start to FY27. Axis Securities has a “buy” rating citing strong performance and gradual improvement in demand

 

Ipca Laboratories 

 

• Ipca Labs is the best performer on the returns front in this list with the least discount to five-year valuation. Strong beat in the June quarter (Q1), upward revision in topline and margin guidance and outlook has aided the rally
• The pharma company posted a broad-based sales beat across markets in Q1FY27. A strong topline led to a sharp 24 per cent beat in operating profit
• Exports continued to grow at a strong pace for the fourth consecutive quarter, led by a robust show in export generics and increased institutional sales
• After two quarters of weak performance, the active pharma ingre¬dient segment saw a strong revival in growth during the quarter
• After three years of robust earnings growth during FY24-26, Motilal Oswal Research expects the momentum to sustain during FY26-28

 

Abbott India 

 

 

• The 75 per cent subsidiary of US-based healthcare major Abbott Laboratories has shed 13 per cent in value over the past year. Its valuations are now at a 28 per cent discount to its five-year average
• Abbott India’s sales grew by 11 per cent year-on-year (Y-o-Y) in Q1FY27 to ₹1,340 crore. Growth has increased since Q3FY26, when sales grew 7 per cent Y-o-Y, and growth improving to 11 per cent Y-o-Y in Q4FY26
• Overall growth was decent given the expected slowdown in some Novo Nordisk brands. It is noteworthy that, except for the anti-diabetic formulations Mixtard and Novomix, most of the power brands are consistently delivering 10-12 per cent growth, thus demonstrating stickiness
• The firm remains a standout performer among multinational corporations due to its new product launch traje¬ctory and consistent relative performance, says ICICI Securities