The consumption sector’s underperformance— nearly 900-600 basis points below the Nifty100 — creates compelling entry points in select names, Motilal Oswal said, highlighting Page Industries, Devyani International, Metro Brands, V-Mart, Lemon Tree Hotels, LT Foods, and Cello World as key stock picks with strong fundamentals and growth potential.
The brokerage noted that the current weakness marks a stark deviation from historical trends, where consumption indices have typically outperformed the benchmark during sharp market corrections. Over the past two decades, the Nifty FMCG and Nifty Consumption indices have delivered average alphas of 10% and 5%, respectively, during 11 instances of a 10% or more fall in the Nifty. The ongoing underperformance, Motilal Oswal said, is largely driven by weak FY25 earnings, with its covered consumption universe expected to post just 2% year-on-year profit growth.
“This is an aberration from historical trends, as consumption indices typically outperform the benchmark during phases of sharp market downturns,” the report said.
However, with fiscal and monetary policies now working in tandem to boost demand and liquidity, and inflationary pressures easing, the outlook for the sector is improving. The brokerage highlighted that India’s policymakers have acknowledged the weak consumption trends and are taking steps to revive aggregate demand and consumer sentiment. “India’s policymakers have taken cognizance of weak consumption and are adjusting both fiscal and monetary policies to boost aggregate demand, liquidity, and sentiments,” Motilal Oswal said.
The Rs 1 trillion in personal tax relief announced in the FY26 Union Budget, along with various state-level income transfer schemes, is expected to lift disposable incomes — a significant portion of which could flow into consumption.On the monetary front, the Reserve Bank of India has deployed multiple tools to stimulate demand, including a 50-basis point cash reserve ratio cut, a 25-basis point repo rate cut, liquidity injections through open market operations, and foreign exchange swaps. Meanwhile, inflationary pressures are easing, with February’s consumer price index cooling to 3.6%. Motilal Oswal now expects FY25 CPI inflation at 4.7% year-on-year, down from 5.1% earlier, and projects a further moderation to 3.8% in FY26.“In addition, inflationary pressures appear to be easing, which should likely help in reversing some of the price-induced demand contraction,” the report added.
The brokerage also pointed to sharp valuation corrections as creating attractive entry points. The 12-month forward price-to-earnings ratio for Motilal Oswal’s covered consumer and retail stocks has declined from peaks of 54x and 109x in September 2024 to 39x and 67x, respectively. The market capitalization of these segments has fallen by 21% and 25% to Rs 26.6 trillion and Rs 9.9 trillion. Within retail names, the divergence has been significant, with stock-specific declines ranging from 9% to as much as 61%, while for consumer names, the range has been 0% to 36%.
“Selective stock picking opportunities have emerged, as consumption indices have significantly underperformed over the past six months,” the brokerage said. Motilal Oswal said it expects a beaten-down profit base and sequential demand recovery to drive earnings growth in FY26, forecasting 13% year-on-year growth for consumer stocks and 37% for retail. The sector could also benefit from light positioning, as it remains an underweight in many top domestic funds.
Also read | ETMarkets Smart Talk: India’s consumption boom – key sectors to watch, according to Harshad Patil(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
