Consumption to rebound in FY26 on tax boost, income stimulus; upgrade HUL, ITC: UBS

Over the past six months, the Nifty FMCG index has fallen around 5.5 percent in trade.

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26 Aug, 2025 12:21

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The consumer sector seems poised for a rebound, noted international brokerage UBS, as several factors are aligning favorably. After a tepid FY2025, the current fiscal year could result in a broad-based earnings recovery for the sector, with overall growth of 13 percent.

The potential income stimulus from the lower taxes, coupled with the upcoming eighth pay commission over the next three years could spur a demand revival in a series of categories and add an extended earnings growth phase.

The valuations for the FMCG sector have corrected significantly, amid the broad-based sell-off in the sector. Valuations have moderated by around 35 percent since October, added the brokerage.

Further, the sector offers a defensive tilt to investors, in a market that could continue to have low risk tolerance amid global uncertainties. The sector could also continue to benefit if risk appetite returns.

UBS prefers value retailers Avenue Supermarts and Trent as income stimulus plays, as a result of their resilient value-driven retail model. Further, FMCG players Colgate-Palmolive and Britannia Industries are at an inflection points, as earnings growth revival could be likely be next year.

The brokerage also sees appealing value in ITC, after the stock has corrected around 12 percent over the past six months on taxation fears.

Out of all the consumption-themed plays, UBS least prefers Asian Paints, as a disruption cycle brings uncertainty, and Dabur India, as the Chyawanprash-maker has 'portfolio issues.'

Furthermore, UBS noted that Dominoes-operator Jubilant Foodworks has priced in a rebound for same store sales growth (SSSG).

UBS has made a series of rating changes across the FMCG space. Hindustan Unilever, ITC, Trent, and Colgate-Palmolive received upgrades to ‘buy’, while Jubilant FoodWorks, Dabur India, and Asian Paints saw downgrades to ‘sell’.

While UBS adjusted target prices across the board, the most prominent hikes were seen for Trent and Colgate-Palmolive. Avenue Supermarts, Godrej Consumer Products, and Britannia retained their ‘buy’ ratings, while Titan remained at ‘neutral’.

Over the past six months, the consumer staples gauge, the Nifty FMCG index, has cracked around 5.5 percent. In comparison, the Nifty 50 index has slipped around a percent during the same time.

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