- Morgan Stanley favors Marico and Tata Consumer for medium-term growth in staples
- Titan is preferred in discretionary segment despite festive calendar shift impact
- Page Industries may recover with strong second-quarter topline growth
Morgan Stanley expects consumer stocks to remain driven by topline growth and earnings trends, with the brokerage highlighting Marico and Tata Consumer among its preferred staples names, Titan as its preferred discretionary stock and Page Industries as a potential near-term recovery play.
Morgan Stanley said revenue growth momentum should remain strong across most consumer staples companies. However, with inflationary pressures building, the market is likely to focus more closely on two-year CAGR volume growth and EBITDA growth.
Titan Preferred In Discretionary
In discretionary and retail, Morgan Stanley expects most companies to see some impact from the shift in the festive calendar, although overall demand momentum should remain broadly stable. The brokerage believes topline growth will remain the key driver of stock performance and names Titan as its preferred pick in the segment.
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Morgan Stanley also sees a potential recovery in Page Industries. A strong topline growth delivery in the second quarter could help reverse the stock's recent underperformance, it said.
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Within staples, the brokerage prefers companies with better medium-term growth visibility, specifically Marico and Tata Consumer. Morgan Stanley also sees potential for near-term outperformance from Nestle India.
For Marico, Morgan Stanley expects 20% or higher EBITDA growth in the second quarter to be a positive for the stock. The brokerage expects the company's year-on-year margin improvement to support EBITDA growth.
For Tata Consumer, raw-material inflation remains the key monitorable. Tea accounts for roughly half of the company's raw-material basket, according to Morgan Stanley, while average tea prices are already higher year-on-year. A sharp increase in tea prices could therefore constrain the company's margin expansion.
Paint Stocks Face Commodity Headwinds
Morgan Stanley remains cautious on paints. While near-term topline growth could improve, the brokerage believes this is already reflected in valuations, while commodity volatility could create additional margin pressure.
It therefore prefers to avoid paint stocks, with higher raw-material costs emerging as a key headwind. The view comes as crude-linked input inflation remains a broader concern for consumer companies.
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