DMart, Trent, HUL Among UBS' Top Stock Picks As It Bets On Consumer Sector Rebound
UBS' positive outlook for the consumer sector is supported by potential income stimulus measures, including lower taxes.
The Indian consumer sector is poised for a significant rebound, according to UBS, with up to 13% earnings growth expected in financial year 2026. The brokerage highlighted DMart-operator Avenue Supermarts Ltd., along with Trent Ltd. and Hindustan Unilever Ltd. among its top sectoral picks.
This uptick for the consumer sector will mark a substantial improvement after a weak financial year 2025. This positive outlook is supported by potential income stimulus measures, including lower taxes. Adding to this is the salary hike of government employees under the upcoming 8th Pay Commission, which is expected to revitalise demand across various consumer categories, UBS said in a note issued on Monday.
According to the brokerage, valuations within the sector have undergone a notable correction, with some stocks declining by as much as 35% since October. This, it said, presents attractive entry points for investors.
UBS' Top Picks
DMart and Trent make it to the top picks of UBS on the back of their income stimulus plays, given their resilient value retail model.
UBS maintained its 'buy' rating on DMart's stock with a target price of Rs 5,200, which suggests a 19% upside potential. With its value positioning, the company can continue to grow strongly.
Trent has been upgraded to 'buy' from 'neutral' and the target price is set at Rs 6,200, which suggests a 21% possible upside.
The brokerage sees large untapped opportunity in tier-two and three towns for Trent. It expects Zudio and Westside—the fashion retail chains operated by Trent—to add 400 and 36 more stores, respectively, by 2027.
UBS also sees potential growth turnaround situations in companies such as Hindustan Unilever Ltd. and Godrej Consumer Products Ltd. It has upgraded its rating to 'buy' for HUL's stock, with a price target of Rs 2,800 and an 18% upside. Also, the 'buy' rating has been retained for GPCL with a target price of Rs 1,500, implying a 21% potential upside.
UBS views Colgate Palmolive (India) Ltd. and Britannia Industries Ltd. as players that are at an inflection point, with earnings growth revival expected in the next year.
The 'buy' rating on Britannia has been maintained with a price target of Rs 6,350 and 17% potential upside. Colgate has been given a double upgrade from 'sell' to 'buy' with the price target set at Rs 3,100, suggesting a 21% upside on the stock.
The least preferred players for UBS in the consumer space includes Asian Paints Ltd., "as a disruption cycle brings uncertainty", and Dabur India Ltd., due to its "portfolio issues".
Both have been downgraded to 'sell', with Asian Paints having a target price of Rs 2,100 with a 15% downside. Dabur's price target is set at Rs 470, indicating a 2% downside.
