Consumer sector in focus post-election results! D-Mart, Tata Consumer could give 12-18% in 1 year
election outcome, a rally in consumer stocks was seen, which is mainly attributed to portfolio allocation.
We believe this rally in staple stocks is driven by not only its ‘defensive sector’ tag but also the underlying excitement, which was triggered by strong post-Q4 management commentary.
Most investors were in sync with us on the risk-reward proposition; however, they wanted to see more signs of recovery before buying into the sector.
In the last week, the risk-reward proposition, along with sector tailwinds, has quickly gained the required attention.
Growth in the FMCG sector is driven by price hikes in the last two years due to high inflation and slower volume growth.
Macro headwinds and price hikes have been delaying the recovery in the rural market, which is under pressure due to weak income growth.
The mass segment was exposed to inflation; hence, the volume recovery has been delayed.
During this period, we have seen down-trading, a higher mix of low unit packs (LUPs), etc. With steady improvements in macroeconomics and price cuts by FMCG companies, we anticipate a rebound in volume growth.
With a prolonged slowdown in rural markets, the government can also be more active in accelerating the volume growth performance.
In our estimates, we have estimated high single-digit volume growth for FY25 and FY26. Thereby, any meaningful pickup in volume growth in ensuring quarters can lead to upgrades in our volume growth assumption.
Secondly, the recent fall in crude prices can further boost gross margins;
