Asian Paints, HUL, Varun Beverages are 'fallen angels', top contra bets

As Indian equity markets chase high-growth narratives in sectors like capital goods, defence, and PSU banks, a new class of contra opportunities is quietly emerging. Market leaders such as Asian Paints, Hindustan Unilever Ltd (HUL), and Varun Beverages—once darlings of the investor community—have seen their stock prices correct significantly in recent months. However, top fund managers and analysts are now branding them as ‘fallen angels’, arguing that the long-term fundamentals remain intact, making them ripe for contrarian bets.

Market Context: Cyclical Rotation Leaves Defensives Behind

The recent rally in Indian equities has been driven primarily by themes of industrial resurgence and domestic capex. Stocks in the infrastructure, public sector, and manufacturing space have seen outsized gains, while FMCG and consumer discretionary names have lagged due to rising input costs, volume pressures, and investor shift to higher-beta sectors.

However, this divergence has created fertile ground for contrarian investors.

“These are not broken businesses. They are market leaders temporarily out of favour due to macro and sectoral headwinds,” said Nilesh Shah, MD at Kotak AMC. “If you’re looking at a two-to-three-year horizon, these stocks offer asymmetric risk-reward.”

Asian Paints: Reeling from Raw Material Pressures, but Brand Remains Unchallenged

Asian Paints, India’s largest decorative paints company, has seen its stock fall over 15% from 52-week highs, underperforming the broader indices. Input cost volatility—particularly in crude derivatives—and rising competition from Grasim’s entry into the paints space have spooked investors.

Yet analysts argue that Asian Paints’ moat remains strong.

“Despite temporary margin pressure, Asian Paints commands unparalleled brand equity and distribution reach,” said Prabhakar Tiwari, Head of Research at Emkay Global. “We believe earnings will normalize as raw material costs stabilize, and the company’s innovation-led approach will protect market share.”

The company has also announced a strategic shift towards waterproofing, home décor, and bath fittings, aiming to diversify revenue streams and reduce reliance on core paints.

HUL: Sluggish Rural Recovery Weighs, But Structural Story Intact

Hindustan Unilever has long been a bellwether for the Indian consumption story. However, sluggish rural demand, high inflation, and changing consumer preferences have led to a contraction in volumes and subdued earnings growth. The stock has underperformed the Nifty FMCG index and is down about 10% over the past year.

Still, many fund managers see this as a temporary phase.

“HUL is a classic contra play. Its pricing power, brand ecosystem, and scale efficiencies are unmatched,” said Rohit Singhania, Fund Manager at DSP Mutual Fund. “As inflation moderates and rural demand revives, earnings should bounce back.”

Furthermore, the company’s strong ESG credentials and digital investments are expected to pay off in the medium term, offering a blend of defensive growth and resilience.

Varun Beverages: Post-Rally Cool-Off Presents Entry Opportunity

Varun Beverages, the largest bottler for PepsiCo in India, delivered a stellar run in FY24, but recent profit booking and concerns over valuation and seasonality have resulted in a 10–12% pullback from highs. The long-term growth story, however, remains intact.

The company continues to expand aggressively in both domestic and international markets, and the non-carbonated beverages segment—such as energy drinks and juices—is gaining traction. The management remains optimistic about margin stability, despite cost pressures.

“Investors tend to forget that Varun is still in an expansion phase,” said Manish Jain, Consumer Analyst at Motilal Oswal. “It’s building future growth levers while defending margins, which is not easy in this environment.”

Why Contra Bets Work: Historical Evidence & Current Signals

Contrarian investing relies on identifying high-quality businesses that are temporarily out of favour due to cyclical or sentiment-driven factors. In India, this strategy has worked well in past cycles—be it during the post-demonetization FMCG recovery or post-COVID bounce in discretionary consumption.

The current correction in quality consumer names offers a rare opportunity.

“These ‘fallen angels’ have strong managements, clear earnings visibility post-recovery, and reasonable valuations for the first time in years,” said Devina Mehra, Founder of First Global. “Patient capital will be rewarded.”

Investor Outlook: Think Long-Term, Avoid Herd Mentality

While momentum-driven strategies have outperformed in the short term, the sharp rally in cyclical names has stretched valuations in many sectors. On the other hand, companies like Asian Paints, HUL, and Varun Beverages are now trading closer to their long-term average multiples or even below.

Investors with a 3–5 year investment horizon, willing to stomach near-term volatility, could consider staggered exposure to these contra picks through SIP in focused mutual funds or direct stock allocation.

As always, individual risk appetite and diversification remain key.

In an equity market increasingly driven by sentiment and momentum, the real edge may lie in reversion to the mean. With strong fundamentals, unmatched brand loyalty, and high market share, Asian Paints, HUL, and Varun Beverages are being re-evaluated by discerning investors—not as falling stars, but as fallen angels poised for redemption.