Global brokerage Goldman Sachs believes the fiscal year 2019-20 has started off on a weaker footing than any year in the recent past, with a tepid outlook for near-term consumption.

The brokerage said the three-month period ended March 31, 2019, was the first quarter in 10 years that has seen each of the 17 consumer companies in its coverage reporting sales growth decelerate year-over-year. It was especially stark in the light of significant optimism about consumer sentiment at the start of the fiscal year 2019 and strong first-quarter results, added the brokerage.

Management of the companies attributed the slowdown in demand to poor rural income growth, disruption due to general elections, liquidity crisis for the channel and a tougher base for GST-led market share gains for organised players, noted Goldman Sachs.

The brokerage said, at the beginning of the FY19, hopes of higher government stimulus and recovery in rural consumption raised expectations of buoyant consumer demand. But, by the end of the year, those two factors were the biggest sources of disappointment, with rural growth falling sharper than urban growth and lower-than-expected government stimulus, added Goldman Sachs.

"We expect the trend to continue for at least the next two quarters as benefits of any government measures to revive rural demand will take time to reflect in demand, and we expect a growth in sales recovery from Q4FY20E partly driven by softer comps," said the brokerage.

In terms of valuations, the brokerage said there have been some correction from their mid-2018 levels, but most still remain 24 percent above the 10-year coverage average. For consumer staples, excluding ITC, multiples are 38 percent above the 10-year average and 12 percent above the 5-year average.

On average, consensus estimates are building in 18 percent and 17 percent EPS growth in FY20 and FY21, respectively. We are 5 percent and 6 percent below on FY20 and FY21 on average, respectively.

Against the backdrop of such tough macros, GS presented three key ideas for FY20. They recommended a 'Buy' on Avenue Supermarts and ITC, and a 'Sell' on Dabur.

First Published:Jun 18, 2019 11:59 AM IST