The consumer sector is in focus. International brokerage firm, UBS believes India’s consumer sector is heading into a sweet spot – what it calls a potential “Goldilocks phase”, where everything aligns just right. From improvement in earnings to better valuations, the brokerage believes a strong comeback could be in the making.
According to UBS, earnings in the sector could jump by 13% in FY26, following a muted FY25. Add to that the possibility of tax cuts, income boosts (like the Eighth Pay Commission), and signs of easing inflation and the sector starts looking a lot more attractive.
“The sector is at a turning point,” the brokerage noted in its report. Furthermore, the report added, “Valuations have corrected significantly by as much as 35% since October making it a defensive but opportunistic bet in a market with low risk appetite.”
Four types of stock
The brokerage house breaks the consumer space into four compelling themes which include:
Growth turnarounds – Companies hit by portfolio issues, now showing signs of revival. The stocks included in this segment are HUL, Godrej Consumer, Dabur.
Disruption-driven derating – Good businesses undervalued due to perceived threats. Asian Paints, DMart, Trent, Titan are the stocks included in this segment.
Undervalued laggards – Quality stocks at inflection points. Colgate, ITC, Britannia, Marico are added in this segment.
Contrarian cycles – Businesses with long-term potential despite short-term pain. Jubilant FoodWorks was added in this category by the brokerage.
Top Picks from UBS – Where the value lies
Avenue Supermarts (DMart)
The brokerage firm has a Buy call on Avenue Supermarts (DMart) with a target price of Rs 5,200. The brokerage sees this grocery retail chain as one of India’s most efficient and profitable business models, especially with its sharp focus on lower and middle income consumers.
Although the rise of quick commerce players had earlier spooked investors, the brokerage firm believes DMart is adapting quickly. It is expanding and strengthening its online arm, DMart Ready, to stay relevant.
“The addressable grocery market in India is around $600 billion, and DMart’s value-driven approach positions it to grow significantly,” added the brokerage in its report. UBS expects a 20% revenue CAGR and 25% EPS growth over FY25-27 for the company.
Trent
UBS has a Buy rating on Trent with a target price of Rs 6,200. According to the brokerage house, Trent’s value fashion format especially Zudio is witnessing rapid expansion and deeper reach into tier-2 and tier-3 towns.
Furthermore, the report noted that Zudio’s store count has grown at a 50% CAGR over the last five years, and UBS expects the brand to add another 400 stores by FY27. The fashion market in smaller cities remains underpenetrated, and Trent is set to benefit.
“Trent has superior execution and supply chain efficiency, which gives it a long-term edge,” the report notes. The brokerage house forecasts 29% revenue CAGR and 36% EPS growth over FY25-27.
Hindustan Unilever (HUL)
The brokerage firm has issued a Buy call on HUL, with a target price of Rs 2,800. After years of being a sector laggard, UBS expects India’s largest FMCG player to regain momentum from FY26 onwards.
The new global CEO is putting the spotlight back on India, and HUL is also addressing portfolio gaps in categories like beauty and wellness.
“HUL’s cost leadership and scale give it the best economics in the sector. Growth is its most powerful value lever,” says UBS. Volume growth is expected to recover to 6-7% in the second half of FY26.
Godrej Consumer Products (GCPL)
UBS has a Buy call on Godrej Consumer Products (GCPL) with a target price of Rs 1,500. The report notes multiple turnaround drivers from innovation in household insecticides to margin improvements in its international business, especially Indonesia.
GCPL has exclusive rights over its upgraded HI formulations, which UBS believes could be a game-changer. “GCPL is entering a structurally stronger phase, with earnings set to grow at 19% CAGR over FY25–27,” the brokerage noted in the report.
Colgate-Palmolive
The brokerage firm has a Buy rating on Colgate-Palmolive with a target price of Rs 3,100. After years of slow growth and market share erosion, the oral care giant has started turning the tide.
Colgate is now pushing premiumization and expanding penetration to drive volume growth. UBS believes its margin reset strategy is tactical and long-term accretive. “Colgate has emerged stronger from its disruption phase and is now a premium oral care specialist with pricing power,” added the brokerage.
ITC
The brokerage firm has upgraded ITC to Buy, with a target price of Rs 490. The sharp stock correction and muted fears around cigarette taxation have made valuations attractive again.
UBS believes that earnings from the cigarette segment are being underestimated and that other FMCG categories will also rebound as demand picks up. “ITC’s current price factors in just 4% growth in cigarette EBIT way below the historical average of 6%,” the report argues. Furthermore, the brokerage sees 10% EPS CAGR over FY25-27, versus the market consensus of 8-9%.
Britannia
The brokerage firm has a Buy rating on Britannia, with a target price of Rs 6,350. The stock has seen a deep correction, and the brokerage believes this offers a good tactical opportunity. “This is a classic case of buying into a great brand during a weak cycle. Once margins recover, re-rating is likely,” the brokerage noted.