Consumption stocks crowd pessimism list in November; Asian Paints, Titan, Britannia among top ten

The urban slowdown in consumption was a result of high food inflation and a slowdown in unsecured consumer credit, said Goldman Sachs in its report.

Consumption stocks saw maximum pessimism in November due to the ongoing demand slowdown in the space, revealed data compiled by Moneycontrol.

Asian Paints, Titan, Britannia, and Nestle India were among the top ten companies with maximum pessimism.

As of November, Asian Paints had 18 sell calls, Nestle 7 sell calls, while Titan and Britannia Industries had 5 sell calls each.

The urban slowdown in consumption was a result of high food inflation and a slowdown in unsecured consumer credit, said Goldman Sachs in its report. It said that food inflation has been in the high single digits for nine of the last 11 months, compared to mid-single digits in 2023. At the same time there has been a sharp slowdown in unsecured consumer lending where the growth in unsecured personal loans came down from around 20 percent year-on-year (YoY) in February to around 11 percent YoY in September.

Slower demand was the primary reason for the four consumer stocks which appeared in the maximum pessimism list. Here is more on it:

Asian Paints

Asian Paints reported a 5.3 percent YoY drop in Q2FY25 net sales. The domestic decorative coatings segment saw a 6.7 percent dip, hit by weak demand, prior price cuts, an inferior product mix and higher rebates. Elara Capital in its report said that Asian Paints' management did acknowledge the impact of competition, which got aggravated due to slower industry demand. And contrary to competitors, the company remained cautious on growth.

Titan

The company's Q2FY25 earnings were weaker than expected, mainly due to jewellery margins dropping by 270 basis points. This was caused by an unfavourable product mix (more gold coins, fewer solitaires) and higher spending on marketing and discounts, JP Morgan said in a report. It added that consumer preference for gold jewellery and weaker demand for high-value solitaires is expected to pressure margins.

Britannia

Volume growth in biscuits in Q2FY25 came in at 8 percent versus the expectation of 10 percent, said HDFC Securities in a report. Biscuits make up 70 percent of the company's sales. It added that the management expects moderation in volume growth going ahead due to a steep hike in raw material costs. Britannia's management in its Q2FY25 earnings conference call had said that the urban demand has deteriorated owing to high inflation in key household essentials, a steep increase in rentals, and a muted growth of the salaried class.

Aditya Sonam, India Consumer Senior Research Analyst at CLSA, had a different perspective. He said the slowdown in metro cities is because of a shift in purchasing behaviour. Consumers in metro cities are opting for quick-commerce and e-commerce platforms over traditional FMCG channels. If urban consumption was truly slowing, concert ticket sales and fast fashion would not be thriving as they currently are, he said. Most of the quick-commerce platforms are not present outside metro cities, and hence a consumption slowdown is visible in the metro cities when data from the top staple companies is considered, he added.

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