Investment analyst Abneesh Roy from Nuvama Institutional Equities shares guidance on consumer sector investments amid challenges like cigarette tax increases, rising crude oil prices due to geopolitical tensions, and a competitive quick-service restaurant landscape for the fiscal year 2027.
For ITC, the cigarette segment faces temporary setbacks from a significant tax rise in the recent national budget, effective February 1. This led to advance buying in January, followed by a drop in March as stockpiles cleared. Fourth-quarter volumes are projected to remain stable, though pricing adjustments lag behind tax costs. Illegal cigarettes may capture more market share, potentially causing a 4% to 5% volume drop in the first half of FY27.
However, ITC’s fast-moving consumer goods division anticipates 10% revenue expansion. Lower costs for tobacco materials provide relief after prior increases. The stock price has fallen from over Rs 400 to about Rs 300, offering reasonable valuations. Roy views it as a medium-term investment, supported by solid dividends and stability, with potential improvement in the latter half of FY27 as conditions stabilize.
Paint manufacturers are hit hardest by the crude oil price surge, as 40% of their inputs depend on petroleum. Companies like Asian Paints have raised prices by 6% to 8%, with others following. If high oil prices persist into May or June, further hikes may occur. Short-term, first-quarter FY27 margins could shrink by 100 to 200 basis points due to cost pressures before full price pass-through. Firms may reduce marketing and other expenses to mitigate impacts, with recovery expected later in the year.
Roy recommends staples such as Nestle, Marico, and Tata Consumer, which are less affected by these issues. In retail, he highlights Titan for benefits from elevated gold prices boosting fourth-quarter performance, Avenue Supermart for adding 85 stores in FY26 and expanding to new regions like Uttar Pradesh, and VMart for robust growth.
Quick-service restaurants encounter multiple challenges: elevated cooking gas costs impacted operations in March, anticipated fuel price rises after elections will increase delivery expenses, and higher packaging costs add pressure. The market’s growing competition reduces pricing flexibility. Roy advises caution in this area.
Overall, Roy suggests focusing on firms with strong pricing capabilities, minimal raw material risks, and predictable earnings in the current uncertain environment.
