FMCG Sector To Benefit From Budget From Q2FY26

Queries

Post-Budget, everyone is talking about the consumption theme. Could you suggest a good entry point for Hindustan Unilever (HUL) and Colgate-Palmolive, or should I wait for further correction? Are aviation stocks a good buy now?

Q4FY25 will be another muted quarter for consumer goods companies, as urban demand is yet to revive, and volume growth is expected to be in low single digit for large fast-moving consumer goods (FMCG) companies.

Further, inflated input prices will continue to put pressure on the margins. The benefits from the Budget should start flowing in from Q1 or Q2FY26.

Instead of large players like HUL and Colgate-Palmolive, it is better to invest in a diversified player like Tata Consumer Products, where earning visibility is much better. In the liquor space, Allied Blenders & Distillers is focusing on premiumising its portfolio to drive profitability and strong earnings growth. Recent correction in these stocks provides a good entry opportunity.

We don’t have coverage on aviation stock. But recent correction in the crude oil prices augurs well from a margin perspective. If crudes prices further correct, then we should expect better margins. Domestic air travel data is good with double digit growth on a monthly basis.

Given the current market volatility, I am considering investing in high dividend yield stocks. What is your take on Vedanta?

One can invest in Vedanta. The company is a conglomerate operating in ferrous and non-ferrous metals space along with exposure in oil and gas.

With a market capitalisation of Rs 1.6 lakh crore, net debt of Rs 70,000 crore and earnings before interest tax depreciation and amortisation (Ebitda) run-rate of Rs 40,000 crore, it trades inexpensive at 6-times enterprise value (EV)/Ebitda on a trailing basis with impressive growth outlook. It has a capital efficient business model with return ratios in excess of 20 per cent, and offers a healthy dividend yield of 4 per cent. There is also a near trigger of an impending demerger which will further simplify the holding.

Over the past few months, the market has been falling continuously. I am a new investor and have invested around Rs 1.5 lakh in a portfolio of shares during this downtrend, mostly in large- and mid-caps. These are Reliance Industries (RIL), Rs 50,000; Tata Consultancy Services (TCS), Rs 30,000; Hindustan Petroleum Corporation (HPCL), Rs 40,000; and Punjab National Bank (PNB), Rs 30,000. All my holdings are currently in the red. I can allocate Rs 15,000 per month from my salary for stock investments. Should I average down my buying price in these stocks or wait for a better entry point?

One can run a systematic investment plan (SIP) in RIL and TCS, and hold on to HPCL and PNB. Rather than proceed with monthly savings, one should do an SIP into stocks like RIL, TCS, Larsen & Toubro (L&T) and State Bank of India (SBI) in equal proportions.

This is not an Outlook Money editorial feature

Answers by: Research Ananlyst at ICICI Securities

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