UBS said the consumer sector has lagged the broader market both in the recent rally and the ongoing correction, which has left valuations looking reasonable, calling the current setup a “goldilocks” scenario.
The brokerage expects FY26 to mark a turning point for the segment, driven by a cyclical earnings recovery and improving fundamentals such as falling inflation, rural wage growth, and fiscal stimulus.
Among its preferred picks, UBS favours Avenue Supermarts (DMart) and Trent as “income stimulus plays” with resilient value retail models that could benefit from rising disposable incomes. DMart, trading at Rs 4,357, was assigned a target price of Rs 5,200 — implying 19% upside — while Trent, last at Rs 5,131, was given a Rs 6,200 target, suggesting 21% potential gains.
The brokerage mentioned that DMart is accelerating store expansion and investing in its e-commerce platform, DMart Ready, to adapt to the rise of quick commerce. It expects a revenue and EPS CAGR of 20% and 25%, respectively, for DMart between FY25 and FY27.
Trent, which operates the Zudio and Westside retail chains, could benefit from strong store rollout plans and untapped potential in tier-2 and tier-3 cities, according to the brokerage. UBS models a 29% revenue CAGR and 36% EPS CAGR over FY25- 27 for Trent.Among turnaround bets, Hindustan Unilever is a key idea. Once a sector bellwether, HUL has become a laggard in recent years, but UBS sees a recovery ahead. The brokerage expects volume growth to recover to 6-7% in the second half of FY26, aided by easing input costs and a renewed portfolio focus under the new global CEO. The stock, last trading at Rs 2,375, has been given a target price of Rs 2,800.UBS also upgraded Colgate-Palmolive, Godrej Consumer Products (GCPL) and ITC to ‘Buy’. The brokerage said it sees Colgate gaining market share in oral care and recovering from a deliberate margin reset, while GCPL is seen benefiting from new product cycles in insecticides and stronger performance in international markets.
ITC, UBS said, offers attractive value after its stock corrected on tax fears, with conservative expectations built into its current valuation.
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On the other end, Asian Paints, Dabur and Jubilant Foodworks were rated ‘Sell’ by UBS. It flagged persistent competition and margin pressure at Asian Paints, weak growth visibility at Dabur, and an already-priced-in recovery at Jubilant, despite positive same-store sales growth trends.
The brokerage said it believes the broader sector is emerging from a weak phase and could see a rerating as cyclical and structural challenges fade. Despite a slight cut in India’s FY26 GDP growth estimate to 6%, UBS said the impact on consumption would be limited, especially as packaged foods, QSR and value retail stand to benefit from the stimulus.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
