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Motilal Oswal Report
The staples companies (excluding ITC Ltd., Tata Consumer Products Ltd. and Varun Beverages Ltd.) have largely experienced a de-rating in valuation over the past two years. Most of the stocks have generated returns below their earnings growth as the quality of earnings (volume-led) was lacking.
During the same period, we have observed several consumer companies in the discretionary sector reporting a high earnings trajectory, resulting in a re-rating of their valuations.
Amid an overall challenging period, we expect gradual improvement in volume growth for staple companies. With risk-reward favoring, we expect staple companies to provide better returns over the next 12-18 months.
We recommend increasing portfolio weights for staple companies. We prefer Hindustan Unilever Ltd., Godrej Consumer Products Ltd., and Dabur India Ltd. in the staples category. In the discretionary category, we continue to favor the jewelry space and prefer Titan Company Ltd.
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