HUL, Godrej, Dabur, DMart set to gain as coronavirus spreads

Amid the clampdown on public gathering by shutting off malls, cinema halls, and pubs to curtail the spread of Covid-19, investors bullish on India’s consumption story are shifting away from companies dependent on discretionary spending such as dining out, watches, jewellery and fast food to those whose mainstay are daily essentials.

The stocks of Hindustan Unilever, Dabur India, Godrej Consumer Products, Marico and Avenue Supermarts are likely to continue their better performance compared with Jubilant Foodworks, Titan, Page Industries and Westlife Development.

The benchmark indices S&P BSE Sensex and the NSE Nifty 50 have fallen more than the stocks in the consumption basket since January 20, the day the virus outbreak was reported in China. This has increased the premium of the consumption index to 75% over the benchmarks compared with 69% before the outbreak.

The outperformance was more due to relative resilience of the stocks in the daily essentials category, which on average fell by 9.4% since January 20. The non-essential category stocks dropped more sharply by 20.7%.

The consumer stocks have a weight of 11.8% in the BSE 200 index. Domestic mutual funds retained a lower weight of these stocks in their portfolios at around 8% at the end of 2019 given their high valuations. This has increased to 8.4% since then.

The lockdown of public places is likely to have lesser impact on the earnings of companies focussed on the grocery and related retail operations. In addition, the tendency of customers to maintain a higher than usual stock of such products in the wake of possibility of a longer lockdown period may support the revenue growth of these companies.

The extended lockdown of malls in metros augurs well for Avenue Supermarts since its outlets are not present in malls unlike some of its peers including Future Retail which runs Big Bazaar.

Food sales accounted for 51% of Avenue Supermarts’ revenue in the first nine months of FY20. A reduction in discount on hygiene products given rising demand may help the company’s profitability in the coming quarters.

Source:- Economic Times

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