FMCG stocks' flight remained uninterrupted on June 5 as investors sought safety in defensives following the surprising election outcome. Counting showed that the incumbent government might not fare as well as the exit polls predicted with BJP likely to form a coalition government instead of regaining power with full majority.

As investors flocked to FMCG, the Nifty FMCG index shot up nearly 6 per cent, extending previous sessions' gains. Emami, Hindustan Unilever, Dabur, and Tata Consumer Products were the top gainers, rising around 10 per cent in early deals.

Other gainers in the pack included Bikaji Foods International, Colgate Palmolive, Marico, Britannia and Godrej Consumer Products, which rose to 7 per cent.

The sharp move comes as analysts expect government spending to help accelerate rural revival and boost consumption. "This will be beneficial for FMCG and retail (apparel, grocery) players," said HDFC Securities.

Since the market is expected to remain extremely volatile, analysts suggested investors allow some time for the markets to stabilise before taking a call.

"Traders and investors should be cautious and consider focusing on defensive and non-government-driven sectors such as FMCG, Telecom, and Pharma stocks," said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.

Foreign brokerage Bernstein had suggested that consumption stocks might see a more favourable outcome if the opposition stocks gained favour, at least in the near term. In the case that the NDA won over 340 seats, the brokerage said that there would be a gradual recovery in rural consumption, and it would likely stay weak near term.

However, in the long term, macro fundamentals will take over, leading to an exponential rise in manufacturing growth, added Bernstein.

If the NDA government does not perform favourably, there will be a quicker recovery in consumption. "Rural consumption will pick up with more money in the hands of the poor," said Bernstein.

Meanwhile, domestic brokerage Emkay Global also sees tailwinds in the consumption sector. The recovery in the rural sector on an improving monsoon was already poised to boost consumption, but the government's likely policy pivot to pro-consumption initiatives will add further legs to consumption stocks, the brokerage noted.

"The FMCG sector has been in a slow and volatile lane owing to controlled populist measures from the central government and sustained macro headwinds. With inflation cooling down and expected to settle, the overall consumption is likely to see a revival," said the brokerage.

"We hold on to our expectation of high-single-digit growth for FY25, as we see the benefits realise with a lag," it added.

As a result, analysts at Emkay expect players having seasonal portfolios like Dabur, Emami, and GCPL to have better performance with seasonal support. The FMCG sector valuation is likely to see a re-rating with the emergence of tailwinds that align well with the enhancement in company execution.

The brokerage upgraded its rating on HUL from 'add' to 'buy', with a target price of Rs 2,900 per share. It also upgraded Nestle India from 'reduce' to 'add', but slashed its rating on ITC to 'add' from 'buy'.

JM Financial also said it prefers the consumer space as it will benefit from improving consumption demand due to the normal monsoon. "Moreover, any populist measures tend to benefit the consumer space the most," the brokerage said.