Consumer stocks have edge over capex-linked ones after shock poll verdict

Indeed, the fast moving consumer goods (FMCG) index rose 0.15% on Tuesday, the only bright spot in the carnage, which included a 12% plunge in the capital goods index.

continued their rise on Wednesday, climbing 5.2%, while capital goods companies slid 1.5%.

The BJP lacking a simple majority raises doubts over a stable government and policy-making styles, said analysts at .

The brokerage remained "overweight" on consumer staples and said was its preferred pick in the sector.

CLSA is also positive on banks, IT and companies, and replaced Larsen & Toubro (L&T) with in its India focus portfolio.

The blue-chip Nifty 50 and Sensex indexes tumbled nearly 6% each on Tuesday, their worst one-day performance since March 2020.

Despite the plunge, valuations of cyclicals are expensive, said , preferring consumption-linked over capital expenditure-linked sectors.

It expects weak demand to weigh on and government capex to decelerate.

The Nifty 50 is currently trading at 19 times 1-year forward expected earnings (PE), below the 10-year long-term average of 20x.

Consumer staples like Hindustan Unilever, Britannia Industries, Colgate are trading at a PE of 52x, 51x and 49x, respectively, lower than their .

Conversely, capital goods companies like L&T and Siemens Ltd are trading above their long-term valuations.

"Days of paying any multiple for stocks in industries where big reforms are expected are gone," said Ashutosh Tiwari of Equirus Securities, cautioning investors to focus on sectors "where earnings visibility is more certain."

Equirus identified rural recovery as a theme that could benefit in the near term and picked building materials, consumer durables, automobiles and industrial consumables as its preferred sectors.

"The election result is likely to lead to a more balanced market; risk-reward in large caps and underperforming sectors like banking and consumer appears more favourable," said Rahul Singh, chief investment officer of equities at Mumbai-based Tata Management.

"More specifically any moderation in the capital spending outlook in favour of consumption support can further drive sectoral preferences going forward," Singh said.

The change in market sentiment, he added, may lead to "greater scrutiny and valuation discipline" in sectors like capital goods, power, defence and manufacturing.