Which consumer stocks to buy as RBI cuts repo rate, CRR, inflation eases?

Business Standard

a day ago

Consumption-related stocks in India: With the Reserve Bank of India (RBI) delivering a double booster for liquidity – interest rate and CRR (cash reserve ratio) cut – in its review of the monetary policy last week, analysts expect India's consumer demand to witness a 'gradual' recovery in the coming months.
Related stocks, they said, could witness a meaningful rally in the second half of the financial year 2025-26 (H2FY26) and the index reverse its underperformance, driven by improved earnings, curtailed inflation, and supportive valuations.
Thus far in calendar year 2025 (till June 6), the Nifty Consumption index has risen 2.2 per cent on the NSE as against a 5.7 per cent rally in the Nifty50 index, ACE Equity data shows.
Individual stocks have, however, delivered mixed returns with Tata Consumer Products, InterGlobe Aviation, and Avenue Supermarts surging between 18 per cent and 22 per cent, while Varun Beverages, Trent, and ITC declining up to 25 per cent during the period.
'Consumption-related companies under-delivered in CY25 amid sluggish volume growth and sustained margin pressures from high raw material costs. However, with supportive policy action, fiscal stimulus, and moderating inflation, we expect overall consumption demand to improve steadily by H2-FY26—supporting a rebound in the performance of the Nifty Consumption index,' said Darshil Shah, senior research analyst at Prime Research, HDFC Securities.
India's consumption Sector: An Overview
After the government's push to drive consumption demand in India, via higher limit for taxable income to claim tax rebate, the RBI, on June 6, front-loaded its monetary policy easing and slashed the repo rate by 50 basis points (bps) to 5.5 per cent.
It also announced a 100-bps cut in CRR, to be executed in four tranches, to 3 per cent from 4 per cent.
According to Seshadri Sen, head of research and strategist at Emkay Global Financial Services, the repo rate cut will help in accelerating credit flow to boost consumption during the festival season, considering the lag effect.
The CRR cut, meanwhile, may help transmission and banks' propensity to lend aiding credit to automobile, consumer durables, power generation (especially green energy), and real estate sectors.
The ₹2.5-trillion liquidity infusion by November (through CRR reduction), coinciding with income tax relief and the expected rollout of 8th Pay Commission benefits, is well-placed to revive the consumption basket, analysts added.
These tailwinds, however, need to outweigh macroeconomic challenges, they cautioned.
Those at Nomura said that with easing input costs, regional competition could grow faster than that for organized companies, leading to an overhang on market share and volume.
Notably, a recent report by market research firm Kantar said that unbranded products drove most of the urban consumption of fast-moving consumer goods (FMCG) in FY25.
Consumption stocks: Where to invest?
Darshil Shah of HDFC Securities prefers Godrej Consumer, Marico, Maruti Suzuki, and Macrotech Developers from the consumption basket.
Nomura, meanwhile, suggests investors focus on companies that have superior growth (in volumes / pricing) trajectory than peers/industry; investments in distribution, digitisation and R&D capabilities to support innovative new launches; and have strong brands, pricing power and higher saliency of premium portfolio to stand out.
The brokerage picks Godrej Consumer Products, Marico, and Tata Consumer Products as its top consumption bets amid hopes of margin expansion, driving strong Ebitda growth, in H2FY26.
That said, Seshadri Sen of Emkay Global Financial Services cautions that since overall market upside is limited from here, outperformance in consumption stocks will be dependent on earnings upgrades.
'Investors will have to wait till H2FY26 to see any meaningful upside,' he said.