CLSA has identified Eternal Ltd. (Zomato), Swiggy Ltd., and Avenue Supermarts Ltd. (DMart) as its preferred stocks in the consumer sector.
The brokerage note highlighted the performance of the FMCG sector, noting that urban consumption trends were lagging behind rural areas, and that urban distribution was facing challenges. "4Q reaffirmed recent trends of weak consumption across the FMCG sector. HPC companies fared worse with 4% year-on-year sales growth and a slight decline in Ebitda, while F&B fared a little better with 7% YoY sales growth and a slight growth in Ebitda. QSR companies fared better with high-teen growth. Overall, discretionary consumption did better than staples," CLSA stated.
The brokerage firm also pointed out that large HPC companies were losing market share, with smaller competitors gaining ground due to the advent of quick commerce and modern retail penetration.
"Our order of preference remains unchanged—we continue to favour retail and discretionary over staples, and within staples we continue to prefer F&B over HPC," it said.
The brokerage also noted that even though FMCG valuations have corrected from recent peaks, they remain expensive in the context of longer-term averages or growth-return expectations.
"Discretionary consumption remains a secular trend driven by rising urban incomes, rapid urbanisation and global aspirations. Overall, discretionary consumption growth remains steady, especially in categories such as jewellery and retail with a slight pickup (on a low base) in QSRs. Our preferred discretionary pick is Titan Ltd," the brokerage added.
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