Consumer staples have seen a sharp re-rating in the past 18 months, driven by gradual demand uptick from depressed levels. We believe the up-cycle has played out and see limited scope for earning upgrades and PE re-rating in the context of rising input costs (crude and currency led) and bond yields. Given stretched valuations, we expect de-rating over the next 6-12 months. We remain cautious on the sector with select buys, viz. ITC, Dabur, NEST and APNT. Cyclical demand recovery still tepid and priced in Consumer demand has recovered from 2016 trough levels given rising GDP growth, improved rural demand and favourable base post demonetisation and GST-led disruptions. While demand has improved marginally, we believe the pace of recovery is muted and could disappoint street as base impact wears off (two-year industry volume CAGR in the past four quarters stable at 5%). Margin expansion levers limited now Margins have surprised everyone in the past five years with sharp uptick given benign RM and companies driving cost efficiencies and GST-led savings. We believe margins have reached a point where further expansion would be detrimental in the long term, as under-investment and attracting higher competition could hurt growth. Crude, currency and bond yields The recent macro developments (higher crude and bond yields, lower currency) impact the sector\u2019s earnings and valuations negatively. We adjust our EPS and PEs across our coverage to reflect this and roll over to Sep 20 EPS. Notable EPS cuts are ~5% for APNT, 3% for GCPL and 6% for UNSP. For other stocks, EPS impact is limited, as we expect price hikes to negate RM pressures. Re-rating cycle played out While consumer stocks have been in a super cycle in the past 10 years, it has had four mini-cycles, each re-rating lasting 12-18 months followed by periods of consolidation\/mild de-rating. We believe the recent demand uptick led upcycle has played out in the past 18-20 months and expect PE de-rating to follow over next 12 months. Given stretched valuations now in context of growth and yields, we believe risk of sharper and longer period of sector de-rating has increased, making risk-reward less attractive even over medium term. Maintain cautious view on sector We maintain BUY only on ITC, Dabur and NEST within our core staples coverage. We see risk-reward as unattractive in \u2018superior execution\u2019 names like HUVR, GCPL and BRIT despite the recent correction of 5-10% and we still remain less convinced on business turnaround in CLGT, UNSP, MRCO and Emami. Within discretionary, we prefer APNT and JUBI post correction with improving risk-reward profile.