Hungry for more stocks: Right time to bite into consumption theme?

Over the past year, the Nifty FMCG pack has underperformed the benchmark Nifty 50 index.

While Finance Minister Nirmala Sitharaman's full Union Budget presentation was expected to bring relief to the middle class, no one guessed that those earning up to Rs 12 lakh would be entirely exempt from paying income tax.

Touted as the Budget for the middle class, the government’s focus on capital expenditure gave way to boosting consumption, according to most analysts. However, as the Finance Minister puts it, the Union Budget has ‘put substantial amounts in the pockets of people who deserve it.’

In a press conference following the Union Budget presentation, the Revenue Secretary Arunish Chawla noted that the rationale behind the substantial move was because the Central government believes the foregone Rs 1 lakh crore will come back to the economy in terms of consumption, savings and investments.

There is merit to this argument, according to most experts.

Over the past few months, the lagging Private Final Consumption Expenditure, which is the amount persons and the households spend on the consumption of goods and services, has been among the key factors driving the slowdown in economic growth over the past months.

Therefore, any boost to consumption and household income is a welcome move. Fast-moving consumer goods, consumer durables, and consumer discretionary sectors are poised to see key benefits, as households find themselves with more money than before.

Also Read | The Big Market Pivot: From capex to consumption - who wins now?

Good time to buy into consumer stocks? 

Over the past year, the Nifty FMCG pack has remained depressed in trade, underperforming the benchmark Nifty 50 index, as well as sectoral indices such as Bank Nifty, Nifty Energy, or Nifty Auto.

Consumer demand, especially from the middle and lower-middle classes, has been sluggish, slowing volume growth for FMCG firms, which struggled to reach double-digit growth in the first half of FY25. The mass-market segment, particularly in urban areas, has struggled in recent months due to high inflation, which has dampened consumption patterns and slowed sales growth for consumer companies.

So with the Budget’s measures to spur consumer growth, is now the right time to buy into FMCG or consumer durable names? According to most analysts: yes. Resoundingly so.

In an exclusive interview with Moneycontrol, founder of Stallion Asset, Amit Jeswani believes that the bottom for FMCG stocks has arrived. "It is a blockbuster budget for consumer companies," he said, adding that he remains bullish on the potential of the consumption sector.

"Hypothetically speaking, the market was seeing only about 5-10 companies outperforming aggressively," Jeswani said, noting that a small group of companies had been driving most of the market’s gains. "Valuation got stretched there because everyone wanted to own those 5-10 stocks. But 90 stocks were certainly experiencing lower valuations."

Discussing valuations of FMCG firms, Prashant Khemka, Founder of WhiteOak Capital Management said that given the subdued consumption trends over the past few quarters, several consumption-related companies have reported weak earnings, leading to suppressed valuations. This presents a compelling investment opportunity.

Not just traditional brick-and-mortar focussed consumption players, but even new-age consumer-focussed names like Zomato and Swiggy are likely to benefit from the move. Talking to CNBC-TV18, market veteran Raamdeo Agrawal said the extra money is likely to go into small ticket items.

"Clearly, when your income level is about Rs 15-24 lakh and you get a benefit of about Rs 70,000-80,000, that money will go into consumption, and that is what the market is betting on. So, I would go by the market judgement that consumption, particularly FMCG companies like Zomato, which sells small-ticket items, will get benefitted," Raamdeo said.

"I would rather spend my money on digital, quick-commerce companies with 70-80% growth rate than old companies, where the growth rate at best will be 10-15%. Clearly, if consumption companies were worth Rs 100 yesterday, today they are worth Rs 105," said the veteran investor.

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