India's consumer story could face a fresh test in the second half of the monsoon season, with Macquarie warning that weaker rainfall in August and September could weigh on rural sentiment and consumption.
Yet the brokerage is not turning broadly defensive on consumer stocks, instead favouring Titan, Lenskart and Marico while remaining cautious on rural-focused names such as Britannia and Dabur.
In a consumer sector note dated August 19, Macquarie analyst Avi Mehta said weather agency Skymet's latest forecast points to a weaker monsoon in August and September. While the impact on rainfall distribution and farm incomes remains uncertain, the brokerage believes a weak late-season monsoon could become a risk for rural demand.
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Titan, Lenskart, Marico Are Macquarie's Preferred Bets
Macquarie's preferred consumer exposures are Titan, Lenskart and Marico, while it remains concerned about rural-focused names including Britannia and Dabur.
The brokerage's ratings and target prices include 'Outperform' on Titan with a target price of Rs 5,600, 'Outperform' on Lenskart at Rs 675 and 'Outperform' on Marico at Rs 965.
It also retains 'Outperform' on Hindustan Unilever with a Rs 2,860 target, while Asian Paints remains its preferred name within the paints space.
At the other end, Macquarie has 'Underperform' ratings on Britannia, Pidilite Industries, Berger Paints, Page Industries and Jubilant FoodWorks, among others.
Why Rural Demand Is The Key Risk
According to Macquarie, July rainfall was largely in line, but Skymet now expects the monsoon to weaken in August and September. The agency has cited strengthening El Nino conditions and uncertainty around the timing and magnitude of a positive Indian Ocean Dipole (IOD) as factors that could reduce support for the monsoon.
The brokerage said historical periods suggest that a weak monsoon in the latter part of the season can have a greater impact on crop production and, consequently, rural incomes.
A repeat of such conditions, it warned, “could weigh on rural consumption.”
Food Inflation Risk May Be Contained
The picture is not uniformly negative. Macquarie sees a lower risk of sharp food inflation, pointing to healthy crop production last season and government food buffers.
Wheat and rice reserves are around three times the mandatory buffer levels, while proactive government measures could partly cushion the impact on farm incomes.
Still, the brokerage said the “spatial and temporal” distribution of the monsoon remains key to monitor.
Paints Could Get An Unusual Boost
There could be a potential silver lining for some consumer businesses.
Macquarie said a weaker monsoon in the latter part of September could extend the pre-festive painting season, as homeowners may use the period to undertake painting activity.
However, it cautioned that whether this translates into higher sales will ultimately depend on the impact of the weather on income levels.
For investors, therefore, the monsoon is emerging as a sharper dividing line within consumer stocks, with rural exposure facing greater uncertainty, while Macquarie prefers Titan, Lenskart and Marico for their consumer exposure.
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