On a day when several stocks hit the lower circuit triggering a trading halt, there were some fast-moving consumer goods and auto names that stood tall. This hints at investors fleeing to defensive bets in a highly volatile market. On Tuesday, India VIX jumped 28%.
Shares of Hindustan Unilever Ltd, Nestle India Ltd, Britannia Industries Ltd, Hero Motocorp Ltd, and Tata Consumer Products Ltd not just stayed afloat but settled about 2-6% higher.
This is in contrast to Shriram Finance Ltd, Power Grid, Larsen & Toubro, BPCL, Adani Enterprises and Adani Ports Special Economic Zone stocks that crashed 10-21%. What spooked investors was a negative surprise in India’s general elections results, with the ruling NDA set to return albeit with a less than expected majority. That said, the broad direction of the economy is unlikely to change, said market experts.
“So, FMCG and auto names are places for institutional investors to hide in a collapsing market,” said Bino Pathiparampil, head of research, Elara Capital. He believes, “There could also be an expectation of a more populist policy framework from the government, given the mandate, which can boost private consumption.”
Even UBS Securities said in 4 June note, “While political stability should help ensure continuity in policy agenda, we see risk of populist bias in the third term (targeted towards lower income strata) and change in economic policy dynamics with tougher reforms getting pushed further out.”
The brokerage said that India’s consumption is recovering in a K-shaped pattern, with demand for luxury and affluent items looking strong and entry-level and mass-market goods remaining relatively flat after the pandemic. This implies that people at the bottom of the economic pyramid, who were presumably the most impacted by the pandemic, still haven’t seen their income levels rise to the point where they can afford to spend again.
So, “limited fiscal support for vulnerable sections of society and weather anomalies affecting rural income have further amplified the gap,” added UBS Securities. Since construction is the main industry that creates jobs outside agriculture, the brokerage thinks that a broad rebound in the capital expenditure cycle is needed to broaden India’s growth.
All in all, any major shift in BJP’s governance agenda is unlikely, according to market experts, but the pace of reforms could soften, they said. The focus on manufacturing will continue, especially given its importance in job creation, some believe.
“There is a possibility of some welfare measures from the government in addition to manufacturing and capital expenditure themes going forward,” said Varun Saboo, Head of Equities at Anand Rathi Shares & Stock Brokers. One will have to wait and watch in the upcoming budget, till then consumer related names may be in focus, but today’s rally across this theme can extend going forward in consumer related names, Saboo believes.
Also, what’s more is that money is shifting from capital goods and PSUs to FMCG and auto.
“PSUs and Capital goods are the most vulnerable sectors, from which we would stay away for the time being. On the other hand, consumption should come back and we see FMCG and value retailers making a strong return,” said Emkay Global Financial Services in a note dated 4 June.
Meanwhile, Rahul Singh, CIO-Equities, Tata Asset Mangement, said that “The election result is likely to lead to a more balanced market; risk-reward in large caps and underperforming sectors like banking and consumer appears more favourable”. On the other hand, there is likely to be greater scrutiny and valuation discipline in the performing sectors like capital goods, power, defence and manufacturing, he added.
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Published: 04 Jun 2024, 11:47 PM IST