The shift in India’s political climate has prompted investors and experts to pivot towards a more defensive portfolio, capable of navigating the political uncertainties brought on by a weaker Narendra Modi-led National Democratic Alliance majority.

What Happened: Domestic brokerage Emkay Global sees positive prospects in the consumption sector, with HUL, Dabur India, Bikaji Foods, and Honasa Consumer as its top recommendations.

The rural sector’s recovery, bolstered by an improving monsoon, was already set to enhance consumption. However, the government’s anticipated shift towards pro-consumption policies will further boost consumption stocks, the brokerage said.

The fast-moving consumer goods (FMCG) sector, previously hampered by controlled populist measures and ongoing macroeconomic challenges, is expected to see a revival as inflation cools and stabilises, according to Emkay Global.

FMCG stocks were one of the few bright spots in the market on Tuesday as indices crashed as election trends showed that the Bharatiya Janata Party would not secure a majority in Parliament on its own.

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For the quarter ending March 2024, most FMCG companies have focused on expanding their distribution capacities, it added. Emkay Global maintains its expectation of high-single-digit growth for FY25, as the benefits of these expansions materialise over time.

Top Picks: Companies with seasonal portfolios, such as Dabur, Emami and Godrej Consumer Products, are anticipated to perform better with seasonal support, according to Emkay.

Emkay believes that the valuation of the FMCG sector is likely to experience a re-rating, thanks to favourable tailwinds aligning with improved company execution and the upcoming full Union Budget could further enhance consumption prospects.

Emkay Global has upgraded its rating on Hindustan Unilever from “add” to “buy”, setting a target price of ₹2,900 per share. The brokerage also upgraded Nestle India from “reduce” to “add,” while downgrading its rating on ITC from “buy” to “add”.

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