Rural demand theme blooms

rose 5.86% while gained 5.58% on Wednesday. , and moved up between 2% and 3% while HUL and Dabur ended 4.29% and 3.74% higher, respectively. The NSE FMCG Index rose 4.4%, while the Nifty gained 3.4%.

"The are is bit worried about multiples in PLI-related sectors since the new government is in a coalition and is expected to give an impetus to the bottom-end of the pyramid," said Nikhil Ranka, CIO - equity alternatives, Nuvama Asset Management. "The focus is shifting from manufacturing and capex themes towards consumption sectors."
On Wednesday, the Manufacturing Index rose 3.7% and the Infrastructure Index gained 2.8% in a relief rally after the previous day's slump.

"FMCG is showing signs of a turnaround and based on the fundamentals this may last for a while," said Seshadri Sen, head of research and strategist, Emkay Global Financial Services. "However, if the valuations get too expensive, the stocks may not compound at the desired rate of return."

Consumer stocks have been out of investor favour in recent years due to rich valuations, pressure on profitability and slowdown in India's rural economy. Meanwhile, shares of companies in manufacturing and infrastructure have been the top performers.

"The broad thesis is that the rural distress has impacted the election outcome," said , CIO, Axis Securities. "This has led the markets to anticipate some welfare spending; however, administrations don't change as quickly."

Analysts said that the impact of coming up with welfare spending might not play out since the turnaround time for the impact to take place is very less with upcoming state elections.

"The BJP has not been very keen with direct subsidy-driven welfare spending but even if they decide to come up with schemes, there is no guarantee on whether it would offset the setback of the election outcome," said Sen. "So, it is not expected that they will succumb to the pressure."

Kulkarni said that short term compression of multiples is possible in manufacturing and capex themes, but they are expected to remain a favorable long-term play, as they are structurally intact.

"Some correction is that these capex-themed stocks are expected since investors perceive some risk and expect policy paralysis," said Kulkarni.