The Income Tax department estimates that Rs 1 lakh crore will be made available in the hands of the taxpayers by virtue of changes in slab, rates and rebate. Nomura estimates that the tax cut could lead to mid-single digit increase in disposable income for individuals and households.
“Changes in personal income tax are likely to increase the disposable income of households, boost discretionary spending but also encourage them to invest more. Higher discretionary income in the hands of consumers should help drive higher consumption on staples and discretionary goods. This is good for FMCG, retail, food delivery, white goods, auto, hotels, and airlines,” HSBC said.
Nifty FMCG index is now down about 19% from its 52-week peak with stocks like Colgate-Palmolive, Balrampur Chini, Godrej Consumer, Britannia Industries and Dabur India lying in bear grip.
Amid a weak earnings season, concerns around Trump tariff impacting global growth, analysts are hoping that consumption stocks may support the market to some extent in FY26.
Besides benefitting the urban consumer, the Budget has also significantly increased allocations to rural employment schemes, agriculture, and infrastructure development, which could lead to improved consumption in non-urban areas as well, said Sujit Modi, CIO, Share.Market. He said companies with a wide rural distribution network are well-positioned to benefit from this expected demand surge.
Beyond Budget
Not just the Budget factor, consumption stocks also look attractive from a technical perspective as the sector is seen as making a comeback after a gap of 4 years with investor positioning in consumption being lightest in a long time.
After a strong outperformance of value investors since 2021, Elara Securities said the market is slowly shifting back into growth/quality style. In previous such cycles where relative returns start shifting back to quality, consumption has always outperformed.
“The weight of consumer names in the NSE500 Index saw an exponential increase in the 2019-2020 period; from 10% to 15% between May ’19 to Mar’20. Currently, the weight has dropped to Jan ’18 low from where the previous big move had started,” Elara Capital’s Sunil Jain said.
Similarly, the weightage of FMCG stocks has also been rapidly dropping since March 2020 and is now at the lowest level since July 2011 and June 2014.
The equal weight FMCG index has been severely underperforming equal weight Nifty index since Apr ’20 and every recovery was failing to cross the 200-DMA.
“However, despite the recent disappointment in FMCG numbers, the ratio has been showing signs of stabilising since the last few months. In the past, whenever the ratio has managed to recover above its 200DMA, we have seen a strong phase of outperformance in FMCG stocks which has also coincided with weaker market trends,” Jain said.
Which consumer stocks to buy after the Budget?
Nomura analysts say aspirational and deferred consumption will see most of the benefit.
“We expect discretionary categories like jewellery, food delivery, paints, retail, travel-related to see the most benefits. We expect staple companies to see second order benefit as the relief can support volume growth, especially in the ailing urban / middle-class consumption, and make it easy for FMCG companies to pass on price hikes and improve the current anaemic growth profile and outlook,” it said.
Motilal Oswal said as urban consumption was under pressure, staple companies are the clear winner, particularly when such savings can be used for more essential products.
Other consumer verticals like QSR, innerwear, liquor are also expected to see an uptick in demand. The brokerage firm is betting on Trent, HUL, Titan, Page Industries and Metro Brands.
YES Securities sees consumer durables like Havells, Crompton Greaves, Orient Electric, Voltas, Blue Star, Symphony, V-Guard, TTK Prestige, Stovekraft, IFB Industries and JCHAC from the listed space as key beneficiaries.
SBI Securities’ list of likely beneficiaries includes FMCG (HUL, Dabur, ITC, etc.), hotels (Indian Hotels, Lemon Tree, etc.), consumer durables (Bluestar, Amber Enterprises, Havells), auto OEMs and jewellery players (Senco, Titan).
By using a factor-based investing strategy, Share.Market has identified HUL and Colgate-Palmolive within the consumption pack.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
