HUL, Britannia: This foreign brokerage is betting big on consumer stocks

UBS expects consumer sector to rebound in fiscal 2025-26 (FY26). Prefers Hindustan Unilever (HUL), Britannia, GCPL, Colgate, Trent and others; suggests selling Asian Paints, Dabur

The dark clouds engulfing India’s consumer sector seem to be clearing, with global brokerage UBS stating that a "Goldilocks scenario is in the making." 

 

UBS on consumer sector FY26 earnings

 

The brokerage believes several factors are aligning to support a potential bounce-back, with earnings recovery expected in the current financial year, following a weak performance in financial year 2025 (FY25). UBS forecasts 13 per cent earnings growth in FY26.

 

Can consumer stocks rally from here?

 

A potential income stimulus — driven by lower taxes and the upcoming Eighth Pay Commission over the next three years — is expected to boost consumption across multiple categories, UBS said in a recent note. This, it believes, could trigger a revival in demand and support an extended earnings growth phase. 

 

 

But what about the valuations?

 

Valuations, the UBS note said, have also corrected significantly – as much as 35 per cent since October. “The consumer sector offers a degree of defensiveness in a market that continues to exhibit low risk tolerance, while also standing to benefit if risk appetite makes a comeback,” UBS note said.

 

Consumer stock strategies from UBS

 

UBS highlighted that there is an interplay of narratives in the sector with a smorgasbord of ideas. The brokerage has categorised Hindustan Unilever (HUL), Godrej Consumer Products (GCPL), and Dabur as growth turnaround stocks that saw valuation correction on the backdrop of portfolio-specific issues.

 

Stock buy and sell ideas: Consumer sector

 

Asian Paints, Avenue Supermarts (DMart), Titan, and Trent are the stocks that have been derated on disruption narratives. UBS marked Britannia, Colgate, Marico, and ITC as laggards at an inflection point, which means these stocks have underperformed recently, but there are signs that things could improve.

 

Jubilant Foodworks is described as a "contrarian cycle story"—a stock where UBS believes the best opportunities may lie in going against prevailing market sentiment, often buying when others are selling and vice versa.

 

UBS on DMart stock and Trent stock price

 

UBS prefers DMart and Trent owing to income stimulus plays and given their resilient value retail model. On DMart, the brokerage has maintained a 'Buy' rating but has cut the price target to ₹5,200 per share from ₹5,250. On Trent, UBS has upgraded its rating to 'Buy' from 'Neutral' and has also raised the target to ₹6,200 per share from ₹4,650 per share. 

 

Turnaround stories

 

HUL and GCPL are turnaround stories, UBS said. UBS has upgraded HUL to 'Buy' from 'Neutral' with an increase in target to ₹2,800 per share from ₹2,700 per share; GCPL is also a buy, and has raised the price target to ₹1,500 per share from ₹1,450.

 

UBS on Colgate stock, ITC share and Britannia share price

 

UBS sees Colgate and Britannia at an inflection point, with earnings growth revival likely by next year and sees appealing value in ITC after a correction on tax fears. It has upgraded Colgate to 'Buy' from 'Sell', raising the target to ₹3,100 per share from ₹2,240. 

 

For Britannia, the brokerage has continued with 'Buy' but has increased the target to ₹6,350 per share from ₹6,000. For ITC, UBS has upgraded to 'Buy' from 'Neutral' and has increased the target to ₹490 per share from ₹470. 

 

UBS says sell Asian Paints, Dabur

 

The brokerage least prefers Asian Paints as a disruption cycle brings uncertainty, and Dabur for portfolio issues. The brokerage has downgraded Asian Paints to 'Sell' from 'Buy' for a target price of ₹2,100 per share from ₹3,650 and has also downgraded Dabur to 'Sell' from ' Neutral' for a target of ₹470 per share from ₹600.

 

UBS has downgraded Jubilant to 'Sell' from ' Buy' and has decreased the target price to ₹600 per share from ₹615.