Move over PSUs, defensive bets can be the next big story under Modi 3.0

US brokerage Citi said that the July budget will be keenly watched and hopes for a bigger push on jobs and . Rural plays may benefit in the near term. "We have witnessed optimism and rising investor interest in India consumer staples names over the past month, primarily led by a potential recovery in rural demand and expectations of good monsoons," it said in a note.

It is of the view that favourable policies by the government in the form of minimum support price (MSP) to farmers could support rural consumption and further drive volume growth and hence market share gains for the companies. Its top picks in the consumer staple space remain (HUL) and .

Sectorally, FMCG's performance has been the best among contemporaries over the last week with 6% gains and higher than the broader Nifty's returns of 1.3%. However, has been a laggard over the past 1-year, yielding 12% as against 22% given by the Nifty.

has attributed the rally in consumer stocks to the election outcome leading to tweaks in portfolio allocation. The rally has been on its ‘defensive sector’ tag and the underlying excitement is because of post-4Q management commentary.

It maintained an 'overweight' call on the staple sector and prefers HUL, Godrej Consumer Products (GCPL) and Dabur as top picks with risk-to-rewards appearing favourable at the current juncture amid expectations of volume recovery in FY25 and FY26.

has identified eight stocks in the consumer space both staple and discretionary viz. Dabur India, Hindustan Unilever (HUL), Marico, Britannia Industries, Gillette, United Spirits and West Life.

Pharma is another sector which is garnering attention. In the pharma space, , Torrent Pharma, Indoco Remedies are Yes Securities' top picks.

Gautam Shah of Goldilocks Premium Research is also putting his money on the pharma sector arguing that the last three months have been in a band for this pack. "I see a bigger breakout happening there. So, all the top stocks, Cipla, Dr Reddy's, Sun Pharma, Divi’s Labs, I see them delivering supernormal returns," this analyst said.

Echoing a similar sentiment, CA Rudramurthy BV told ETNow that FMCG, pharma, IT are sectors which will likely do well with focus turning on rural development and financing.

Nifty Pharma's one week returns stand at 2.67% while 1-year returns at 48% which are more than double of Nifty.

Moving over multibagger PSUs

A weaker election outcome for the incumbent government unnerved the street with PSU stocks witnessing a significant hit on June 4. While the slide has been arrested, rich valuations are a sticking point for many top analysts on the Street.

Sandip Sabharwal of said that valuations are excessive and are likely to remain so as many stocks are trading at "double the valuation at which they should ideally be trading at". He stresses the possibility of both time-wise and value-wise correction over the next few months.

CA Rudramurthy BV said that after a fabulous rally in PSU stocks for the last 1-2 years which he called as a decadal rally, he would "definitely" make the necessary changes after the election verdict.

Meanwhile, Citi also remains selective in the PSU space expecting some near-term volatility given the sharp rerating in the space over the past year.

The S&P BSE PSU index has declined by 3% over a week period till Thursday while its 1-year returns stand at 93%.

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Market outlook

Street is not ruling out a 10% correction from here though reaffirming that the bull run is still not over.

Yes Securities highlights historical data which state that markets tend to perform well over the 6-12 months following election results. It said that a 10-20% correction is not uncommon even in bull markets. "The recent market downturn related to election uncertainty has likely reduced market leverage, which is a positive sign," it noted.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)