Defensives are back, says Nuvama; bets on Pidilite, HUL, United Breweries

Among the key themes identified in the report is the growing importance of rural markets. Nuvama expects companies with a stronger rural exposure to outpace urban-focused peers in the next 2 quarters

Defensive stocks are making a strong comeback, as per Nuvama’s report, which highlighted top investment picks such as Hindustan Unilever (HUL), Pidilite, United Spirits, United Breweries (UBL). ITC and Nestle. These companies, analysts said, are seen as strong performers in a challenging economic environment, with stable growth prospects and resilient demand, especially in rural markets.

 

On Tuesday, February 18, Nestle closed with a gain of 0.39 per cent at Rs 2,223.95. In contrast, ITC finished 0.8 per cent lower at Rs 405.20, while HUL dropped 1.42 per cent to settle at Rs 2,295.80. Pidilite closed 0.58 per cent lower at Rs 2,765.90, and UBL ended the day with a 0.36 per cent decline at Rs 2,021.20.

 

 

Analysts said Britannia, ITC, and Nestle are expected to perform well over the next year. These companies stand out for their strong brand recognition, consistent earnings, and leadership in their respective sectors. Despite a slowdown in urban markets, analysts believe, defensive stocks like these are set to offer stability, making them attractive for long-term investors.

 

However, not all companies in the consumer sector are expected to perform equally well. Nuvama predicted that companies such as Godrej Consumer, Bikaji Foods, and Tata Consumer will face margin pressures in the near-term due to rising raw material costs. 

 

These companies have struggled with inflation in key inputs like palm oil, coffee, and tea, which has affected their profitability. Nevertheless, Nuvama analysts believe the downside risk for most consumer stocks remains limited, given their defensive nature and reasonable valuations.

 

Rural vs Urban

 

Among the key themes identified in the report is the growing importance of rural markets. Nuvama expects companies with a stronger rural exposure to outpace urban-focused peers in the next two quarters. 

 

For instance, Dabur is expected to outperform Colgate in the toothpaste segment, while Berger Paints is set to surpass Asian Paints in the coming months. Rural demand has been resilient, with volumes growing at nearly twice the rate of urban markets—rural volumes are up 9.9 per cent, compared to just 5 per cent in urban areas.

 

In terms of overall sector growth, Nielsen data revealed that the consumer sector grew 10.6 per cent year-on-year (Y-o-Y) in Q3FY25, a considerable increase from the 5.7 per cent growth in Q2FY25. Price growth accounted for 3.3 per cent, while volumes saw a 7.1 per cent increase Y-o-Y. The growth, analysts noted, is primarily being driven by rural demand, which continues to outperform urban markets, despite the latter's struggles.

 

Among the best-performing companies in Q3FY25, United Spirits (10 per cent), Pidilite (10 per cent), and United Breweries (33 per cent) reported strong volume growth, with a positive outlook for continued demand. 

 

On the other hand, companies like Bikaji Foods, Godrej Consumer, and Tata Consumer reported weaker results due to inflationary pressures on raw materials. 

 

The companies with international exposure also performed well in terms of top-line growth, though depreciation of the Indian Rupee (INR) impacted their INR sales growth. Notably, markets like Bangladesh have been more favourable for companies like Marico and Dabur, driven by macroeconomic stability and a low base.

 

Moreover, the alcoholic beverage sector has been buoyed by reforms in Andhra Pradesh, which have majorly boosted growth for companies like United Spirits and UBL. United Spirits saw a 6.1 per cent growth contribution from Andhra in Q3FY25, and UBL also benefited from strong demand from the state. These companies are ramping up local production to meet growing demand.

 

Outlook

 

Looking forward to FY26, Nuvama expects the urban slowdown to persist until Q1FY26, with a recovery likely to begin in Q2FY26. 

 

The revival, analysts highlighted, is anticipated to be driven by tax cuts in the Union Budget and potential rate cuts by the Reserve Bank of India (RBI). Rural demand is also expected to continue its gradual recovery, supported by favourable crop conditions and government freebies. However, companies vulnerable to inflation in raw materials, such as Godrej Consumer and Tata Consumer, are likely to face margin pressures until at least Q1FY26.

 

In the beverage sector, AlcoBev companies are expected to see strong growth in Andhra and Telangana, with disputes in the region now resolved. The cola wars are also set to intensify, with new energy drink launches and IPL sponsorships giving brands like Campa an edge in the market.

 

That said, Nuvama analysts’ outlook for 2025 is cautiously optimistic, with defensive stocks positioned to perform well in a volatile economic landscape. While CY2024 may have been muted, analysts at Nuvama expect a stronger performance in the CY2025, driven by resilience in rural demand and strategic adjustments by leading companies.