CNBC’s Inside India Newsletter: Indian Consumption Stocks Await a tax-cut bump

This report is from this week’s cnbc’s “inside India” newsletter which brings you timely, Insightful news and market commentary on the emerging powerhouse and the big businesses bends Like what you see? You can subscribeHere.

It has been over a month since India unveiled its union budget, which offered a massive tax relieve aimed at boosting urban consumptionThe move, however, have done little to lift consumer stocks.

The nifty FMCG (Fast-Moving Consumer Goods) Index-which Captures 15 Stocks Listed on India’s National Stock Exchange – Rose Over 3% as the Budget was Tabled on Feb. 1. This rally, however, quickly fizzled out.

The index has declined in 18 out of the 23 sessions following the budget boost and is down near 9% so far this year, compared with the 4.72% drop in the nifty 50 index.

The expectation was for shares to rally as investors factored in Higher Consumer Spending Once Tax Cuts come into effect in April. However, investors have had to curb their tehusiasm due to a confluence of factors.

Many consumers are likely to pocket the higher disposable income resulting from these tax cuts, or spend the money on non-frimcg good good good good good as motor vehicles, according to kranthi bathini, diet Equity strategy at Wealthmills Securities.

“It’s not an overnight thing, where fmcg stocks will risk now with the tax cuts and RBI’s (Reserve Bank of India) Rate CutIt will take some time to see the impact, “Bathini said.

Higher Valuations have also also dimmed the appeal of many FMCG Stocks, Analysts Said.

Another Reason for their underperformance is the “Reasonally High Penetration Level” of Certain Personal and Home-Care Products, Said Pramod Gubbi, Co-FOUNDER OF MARCELLUS Investment MANAGERS. This implies that companies have alredy captured a sizable market share, Leaving Little Room for Further Growth.

Source: nse statistics

“Indian FMCG Companies have had had anemic volume growth even before the recent consumption slowdown set in the July to September Quarter,” Gubbi Added.

Companies Such as Nestle India – With Popular Brands Like Maggi, Nescafé and Kitkat Under Its Umbrella – have also also also also bee Products.

Data from the world bank Shows that India’s GDP Per Capita Grew 7.1% in 2023 from a year ago to $ 2,200.

Many companies were banking on a “premiumization wave,

They are expected consumers to seek better products as they become more affluent, but sales have not met expectations, Gubbi Told CNBC’s Inside India.

The growth of Direct-to-Consumer Firms have also taken Revenue Away from FMCG Companies with Traditional Sales Channels, He Added.

Since February, Shares in ITC – The top holding in the nifty fmcg index with a 30.7% weight – have slumped 12.3%, while Hindustan Unilever (20.2% weight) Has Lost 11.4%. Other top-and-other companies such as such as Tata Consumer Products and Nestle india Have declined 10.5% and 5.4%, respectively.

“Consumer Stocks Like Hindustan Unilever, Godrej Consumer Products and Others WHER SORE FACIN MARGIN PREGIN PRESSURE CECAUSE OF MARGICE OF THE Weak Demand – Whoch Was Also Seen in the Second-Quarter GDP Numbers“Bathini Told CNBC’s Inside India.

However, he added that the faster growth seen in fiscal third-certain gdp would signal “some kind of improvement” in the consumer-decisions’ results.

India’s GDP Data for the Quarter Ending December Showed A 6.9% Year-on-Year Growth in Private ConsumptionUp from 5.9% Three Months Earlier.

The question for investors are why they should bet on the FMCG Sector – Or Look Elsewhere.

With consumption trends “Still Patchy at Best Across Segments,” Said Harsha Upadhyaya, Chief Investment Officer at Kotak Mahindra Asset Management, Adding that FMCG Stocks Wlding “NEED BETTER Earnings growth and/or lower valuations for sustained performance. “

“Without this, the stocks may be range-bound or in line with market movements,” upadhyaya told CNBC’s inside India.

For institution, Hindustan Unilever Trades at a price-to-earnings ratio of 48.5, compared with the nifty 50 index p/e of nearly 20.

Marcellus’ Gubbi is positive on specific segments with the consumer space, rather than the sector as a whole, highlighting food and beverage as well as kitchenware Lower barriers to entry and sales on e-commerce platforms.

Perhaps, The Lesson for Investors Looking to Find Bargains in India’s Consumer Sector is to be as discerning in their stock selections

India Commerce and Industry Minister Piyush Goyal Visits Washington Monday.The minister is expected to Meet Us Trade Representative Jamieson Greer and Us Commerce Secretary Howard Lutnic to Discuss a Trade AgreementAccording to an official. Goyal’s Visit Occurs Just Weeks Before Reciprocal Tarifs from the US COME INTO Force, Which means Indian Goods Imported Into The Us Would face high Leviies, LEADING to Approximately $ 7 Annual Losses for India, Citi Estimated.

Us Wants Zero Tariffs on Car Imports in India.As part of a potential trade deal between washington and new delhi, the trump administration is pressing the latter to Remove Its Tariffs on Automobile ImportsHowever, India is related to accede to that request, although it is open to lowering levies further, reuters reported, right three sources family with the matter. Removing Auto Tariffs in India – which are as high as 110% – will smoothen tesla’s entry into the market. The elon musk-founded company is prepaering to start seling its electric vehicles in India.

India to Remain Crucial to the Global Supply Chain.The south asian nation has the highest average tariffs on us goods, so it comes as little surprise thatUs President Donald Trump has Threated to Slap India with retaliatory Import LeVies. However, India is doing Increasingly Important for Manufacturers Diversifying from China, which means Tarifs might not diminish new delhi’s important as a production hub.

British Smartphone Startup Nothing Looks to India.Nothing, which launched its new phone (3A) device on tour, is targeting the Indian market, according to ben wood, Chief analyst at Market Research Firm ccs insight. The company experienced 557% Year-Over-Year Growth in India Last Year, Making Nothing the Fastest-Growing Smartphone Brand in 2024Founder carl pei said in January. Furthermore, the company’s co-founder akis evangelidis plans to move to India to head up operations there late this year.

Indian Stock are showing signs of a pick up, after the Nifty 50 Index Closed at 22,544.70, Rising just under 1% from the week before.
The Benchmark 10-Year Indian Government Bond Yield Edged Down Slightly to 6.687%.

In CNBC TV this week, Michel Doukeris, CEO of the World’s Larget Brewer Ab Inbev, said that India is “One of the big markets for growth in the future. “The south asian nation is alredy the third-largest global market for budget for Budweiser-and with India’s” very young “and urbanizing population that is experiencing an in-increction an increase Countering poet Opportunity “for the brewer. However, obstacles such as high regulation and taxes on alcohol meaning the road ahead won’t be completes sailing.

Meanwhile, CNBC’s Seema MODY REPORTED That Investors Are Athinking Their Exposure to Emerging Markets Because of Trump Tariffs, and Taking Note of Which Countries are Most and LEAST Dependant On the Us Indian, However, “Continues to be a head scratcher. “The Results of Indian Prime Minister Narendra Modi’s efforts to negotiation an agrement with trump are still uncertain, weighting on Indian stocks. Compared with that of China, even after the latter’s rally in tech stocks last week, annalyst said.