FMCG stocks likely to see valuation re-rating, says Emkay Global; upgrades HUL, Nestle; cuts ITC share price target

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Also Read: When mkt crashes, defensives like HUL, Nestle, Hero stand tallMarket expectation prior to election results was on pro-infrastructure measures, which were perceived to benefit consumption, again with a lag. However, analysts now believe that the current seat tally of ruling Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will keep the government on its toes with pro-consumption initiatives being key.

Amid this, analysts see tailwinds for the FMCG sector, which will aid overall valuations.“With inflation cooling down and expected to settle, the overall consumption is likely to see a revival. This aligns well with the turnaround in rural growth (growth gap to urban to see expansion) and expectations of above-normal monsoon for FY25," said Nitin Gupta, Senior Research Analyst at Emkay Global Financial Services.Also Read: Nifty FMCG index jumps 5%. Marico, Britannia, COLPAL touches record highHe also sees structural benefits arising from central government schemes like the Ujjwala scheme, Jal Jeevan mission, Swachh Bharat Abhiyan, Housing for All initiatives, etc.Meanwhile, in the quarter ended March 2024, the management of most FMCG companies had noted action plans regarding enhancing prospects with distribution expansion.

The brokerage firm sees that macro support will aid growth ahead and holds on to its expectation of high-single digit growth for FY25, as it sees the benefits realize with a lag. Players having seasonal portfolio like Dabur India, Emami, and Godrej Consumer Products are likely to have better performance with seasonal support, Gupta said.Also Read: Election results shocker! PSUs unlikely to re-rate, FMCG, private banks in focus, says PL; lists top stock picksHe is of the view