UBS: Outperformers—Pantaloon, Asian Paints, Nestle and United Spirits; underperformers—Dabur and Godrej Consumer.

Consumer sector positioning and preview
􀂄 Outperformance over the past three months
The UBS Consumer universe has outperformed the BSE Sensex by 6% in the past
three months. We believe the key reasons are: 1) visibility on acceleration of
volume growth in H2 FY11; 2) better pricing power; and 3) investor preference
and higher weightage to quality and low beta stocks at higher index levels.
􀂄 ITC and United Spirits—top picks
Our top picks are ITC and United Spirits due to: 1) higher volume growth
expectations in H2 FY11; 2) a potential decline in raw material prices; and 3) the
absence of any near-term negative catalysts.
􀂄 Prefer discretionary over staples and F&B over HPC
We prefer discretionary spending plays due to: 1) improved consumer confidence;
and 2) the upcoming festival season in the October-November period. We prefer
F&B over home and personal care (HPC) given: 1) potential price wars in the HPC
space (i.e. P&G launches); 2) higher promotional expenses associated with
launches; 3) a potential decline in agri-commodity input prices; and 4) volume
growth accelerating in the packaged food space.

􀂄 Preferences over three-month horizon
Sector outperformers—Pantaloon, Asian Paints, Nestle and United Spirits. Sector
performers—HUL, ITC, and Titan. Sector underperformers—Dabur and Godrej
Consumer.