Delayed winter and moderation of rural growth will impact FMCG stocks in the third quarter of FY20, said Vishal Gutka, AVP-consumer & media at Phillip Capital.

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“Splitting of winter season likely to impact Titan and Asian Paints because both have festive demand that’s kicking in and agriculture inflation is likely to impact Nestle and GlaxoSmithKline Consumer Healthcare to some extent in this quarter,” he added.

On stock selection front, Gutka said, “We continue to remain with strong companies like HUL, Asian Paints and Nestle. Although valuation continues to be rich for these companies, we believe there is some recovery in other sectors.”

“We believe valuations likely to remain at current levels because these companies have seen decent cash flow over a period of time plus they have best in class management, RoEs are decent and provide headroom and visibility for growth in coming quarters as well. So valuations remain rich but in near-term, the performance could be subdued for a couple of more quarters. We expect to see good revival happening from Q1 of FY21,” added Gutka.

He further said that Asian Paints gaining market share in lower-end putty and distemper.

According to him, excess rainfall has impacted demand for exterior paints.

“Within mid-tier companies, we continue to like Dabur a lot because under the new management things have stared reviving per se, they are reinventing their old categories, they have been aggressive in rural distribution and they are changing the packaging of their products. So we continue to be bullish on Dabur.”

We are negative on Godrej Consumer Products (GCPL) as 50 percent of their revenue comes from international markets, said Gutka.