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BNP sees Sensex at 44500 by year-end, turns bearish on the consumer sector

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Mumbai: BNP Paribas has turned ‘negative’ on the consumer sector citing rising input costs, risks to government spending and telecom tariff hikes as the main reasons.

The bank has downgraded its rating on Nestle, Godrej Consumer Products and Titan to ‘reduce’ from ‘hold’ and on Dabur, Emami and Jubilant FoodWorks to ‘hold’ from ‘buy’.

It has retained its ‘buy’ rating on ITC and Marico. “Indian FMCG revenue growth has slowed down since FY16, but earnings growth has been strong driven by benign raw material costs and tax rate cuts (GST and corporate tax).

However, we see some headwinds going ahead,” said BNP’s analyst Kunal Vora in a client note. BNP Paribas on Thursday also said it expects a 9 per cent rise in Sensex amid concerns on the broader economy.

It expects the 30-share BSE Sensex to be 44,500 points by the end of the year.

In the past five years, most consumer companies struggled to clock double digit revenue growth despite the macro and external factors being better than current levels, the bank said. BNP said FMCG companies’ operating margins, which have been improving consistently, could also be at risk from the recent rise in raw materials.

FMCG spending could also be impacted due to rise in telecom tariffs. “Weak income growth and inflationary pressure in categories such as telecoms, could make price hikes difficult for the FMCG companies, without hurting volumes,” the note said. BNP said most companies continue to trade at a premium compared to their last five- and ten-year average estimated price-to-earnings ratio.

“We see a risk to consensus earnings estimates as well as multiples,” it said.




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