Jefferies sees some recovery in the consumer staples sector after a tough 2023 due to inflation. For H2CY24, Jefferies remains hopeful for a better rural outcome. Further, the brokerage believes that high-priced inventory and trade de-stocking will stabilise in FY25, and product price corrections are likely to reflect fully on the consumer.

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The brokerage also expects some announcements in the upcoming budget to boost rural demand.

"2024 will be the national election year, and the trend over the last three election cycles suggests large rural/eco. weaker section supportive schemes see a push," the report said.

Jefferies expects gross margins to expand in FY25, but to a lesser extent than those seen in FY24. Companies are likely to double their focus on volume growth in 2024, led by category development, brand, investments, and innovation, as per the brokerage. Altogether, media spending may continue to inch higher as companies re-invest gross margin tailwinds. Despite higher media spending, the brokerage believes earnings before interest, tax, depreciation, and amortisation (EBITDA) margins will continue to recover in FY25 even though the pace of expansion may be slower. 

According to the report, revenue growth is expected to be 9-10 per cent despite limited product price hikes. This, along with modest margin expansion, should enable double-digit Earnings Per Share (EPS) growth in FY25.

GCPL, Marico, Dabur, and Honasa are Jefferies' top picks in consumer staples, given company-specific factors and drivers. Apart from these, the brokerage prefers to stay selective given stretched valuations in several cases.

Stocks New Rating New Target Old Target
Tata Consumer Products Hold Rs 1,140 Rs 1,030
Britannia Industries Hold Rs 5,550 Rs 5,100
Dabur Buy Rs 650 Rs 600
Nestle Hold Rs 24,750 Rs 20,600
Colgate-Palmolive India Buy Rs 2,820 Rs 2,320
HUL Buy Rs 2,800 RS 2,720
ITC Buy Rs 540 Rs 530
GCPL Hold Rs 1,400 Rs, 1,200
Varun Beverages Buy Rs 1,450 Rs 1,100
Honasa Consumer Buy Rs 590 Rs 530
Emami Buy Rs 650 Rs 600

Consumer staple share price performance 

In a year, Nifty FMCG has soared over 32 per cent, and S&P BSE Fast Moving Consumer Goods has gained over 30 per cent against Nifty 50's rise of over 19 per cent. 

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