Markets eye stock re-ratings post release of govt's consumption expenditure data
- Sectors like FMCG, healthcare, and entertainment are set to benefit as market analysts re-evaluate stocks in light of the government's latest consumption expenditure data, highlighting shifts in consumer spending patterns
Following the government's capex-push led surge in infrastructure shares such as L&T, the stock market is likely to shift its focus to the consumption story, particularly in rural India. This shift aligns with the release of the National Sample Survey Office's (NSSO) delayed monthly household expenditure survey for 2022-23, which appears to support the Bharatiya Janata Party's narrative ahead of the Lok Sabha elections.
The political narrative is expected to resonate within stock market trends as well, especially since the findings of the last survey for the year 2017-18 were discarded after results leaked to the press, showing a drop in consumption levels.
The latest results reveal that average Indian household spending has more than doubled in the last ten years, with a greater portion of expenditure going towards discretionary items such as clothes, television sets, and entertainment, while spending on food items has decreased. The share of spending on food dropped below 50% for the first time in rural India.
Among food items, spending on cereals has decreased, with the largest share going to milk and dairy products. In both rural and urban areas, households spent nearly as much on eggs, fish, and meat as on vegetables. Spending on processed food, takeaway, and dining out has risen in both rural and urban India.
Stock analysts are, therefore, expected to push narratives around the re-rating of stocks that stand to gain from changes in consumption behaviour across the country.
Motorcycle maker Hero Motocorp has long been the go-to stock for analysts recommending a rural play. Fast-moving consumer goods (FMCG) makers have been discussing a slowdown in sales, especially in rural areas, but could see a revival after the government released consumption expenditure data.
Hindustan Unilever, ITC, Dabur, and Nestle India are among the key FMCG stocks analysts are watching for benefits from increased spending on items such as toothpaste and hair care products. A new addition to the list is Tata Consumer, which now manages the Sampann brand. Tata Tea and Himalayan natural mineral water are among the brands it owns. From just two products, tea, which gives the company about 80% of its revenue, and coffee just a couple of years ago, it now sells salt, spices, pulses, ready-to-eat foods, and breakfast cereals. After Sunil D'Souza was brought in as Tata Consumer's new managing director from Whirlpool, India, the stock fell 6% on news of his resignation! Market analysts expect Tata Consumer to be the new rising food and beverages giant in the country.
Staying with the theme of discretionary spending, especially in urban India, Wonderla Holidays, the country’s largest amusement park operator by revenue and visitors, is likely to benefit from changes in consumption behaviors. It operates three amusement parks in Bengaluru, Kochi, and Hyderabad, with more planned in Bhubaneswar and Chennai. Barring the pandemic years, FY21 and FY22, the company has remained profitable over the last decade.
Increased spending on healthcare is expected to renew interest in Narayana Hrudayalaya, founded by Dr. Devi Shetty, as a cardiac specialty treatment facility. It is now looking to expand into other specialties such as cancer treatment, a segment with a significant demand-supply gap.
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