Consumer Giants HUL and Nestlé India See Stock Declines Following BofA Downgrade
Shares of Hindustan Unilever Ltd (HUL) and Nestlé India dropped on Wednesday after Bank of America (BofA) downgraded both FMCG players, citing high valuations amid muted volume growth and consumption uncertainty.
HUL’s stock fell as much as 4.3%, while Nestlé India dipped 2.5% in intraday trading. The declines came in contrast to a 0.36% gain in India’s benchmark Nifty 50 index, drawing focused attention from FMCG investors and market analysts alike.
BofA shifted its rating on both companies from “buy” to “underperform,” highlighting inflationary pressure in rural India and a weak growth outlook in key categories. The brokerage signaled concern that premium products may face volume headwinds as consumers pull back on discretionary spends, particularly in non-urban markets.
“Across categories like beverages, personal care, and food, we’re seeing signs of normalization after a strong post-COVID recovery. However, the volume growth has failed to keep pace,” noted the BofA report. It further emphasized that both HUL and Nestlé India are trading at price-to-earnings ratios significantly above historic averages, magnifying downside risks if growth expectations fall short.
For HUL, BofA expects near-term headwinds due to persistent sluggishness in rural demand and heightened competition in key categories like detergents and skincare. Meanwhile, Nestlé’s premium portfolio — including chocolates, coffee, and nutrition — may struggle to deliver volume-led growth as inflation continues to impact household budgets.
Despite the downgrade, the long-term fundamentals for both companies remain strong, given their deeply entrenched brand portfolios and robust distribution networks. However, the report suggests that more attractive entry points may emerge as valuations correct in line with earnings visibility.
The FMCG sector, typically seen as a defensive play, has faced pressure this year as inflation and elevated input costs weigh on margins and consumer offtake. With urban demand stabilizing and rural markets yet to rebound fully, top-line growth remains a key concern for large-cap consumer staples.
BofA’s call underscores a broader industry trend: investors may rotate capital away from pricier defensives in favor of value-driven or higher-growth consumption