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Consumer cos may see weaker topline on margin pressure: JP Morgan

MUMBAI: Consumer companies are likely to suffer from weaker topline on margin pressures in the near term as the second wave of COVID-19 pandemic has dented income and spending intentions, said JP Morgan.

The financial services firm’s online survey of 400 people, comprising urban, salaried and young people, indicated weaker incomes, deferred spending intentions and increased online activity. JP Morgan said it prefers banks to discretionary stocks as it sees them as near term plays on the second wave peaking and they can also benefit from any cyclical improvement in demand after the pandemic.

“…survey feedback suggests confidence is weak currently and can affect top lines/volumes for consumer sectors, especially as increasing input costs pressure margins. Discretionary is likely to be at greater risk than staples, by definition,” said JP Morgan.

“We remain cautious on discretionary even as: (1) the sector has underperformed,” it said.

The survey conducted by JP Morgan showed 57% of the respondents suggested that their incomes have fallen since the beginning of the pandemic. Their survey sample had 85% of the people working from home. About 80% of those surveyed intend to defer high-ticket spending such as electronics, jewelry and cars but a few intend to downtrade brands. Over 70% still intend to finance large purchases, said JP Morgan.

More than 60% of those surveyed reported an increase in online purchase activities, with the sharpest increase being for personal care products, food delivery and perishable groceries.

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