The festival season is upon us again, and once again we are readying to usher in Goddess Laxmi into our home with Diwali round the bend. While this is the season to be jolly and bring in gifts and goodies for everyone, we are here with something that may well be a gift for you. If you are financially savvy and investing rather than spending is on your mind this Diwali, this blog post is just for you! We are here to tell you which trends are being buoyed by the festive cheer and will also hold you in good stead, over the medium to long term.
- India is in a sweet spot
First up, let us take a look at the macroeconomic situation. There is little doubt about the fact that there is an undercurrent of buoyancy at the moment in the Indian bourses. This has largely to do with RBI swooping in with a larger than expected rate cut and the promise of more that is finanlly giving the confidence of an economic revival that has been expeted for so long. This economic revival deluded the markets in the first half of the year, with RBI holding onto the rate cuts and the slowdown in order flows for most of the corporates in the first half of the year.
Things have however taken a turn for the better in the second half and looking forward we can indeed say that the investor confidence is at its peak. This is despite the fact that the global economic situation is far from perfect. India however remains largely insulated thanks to the fact that there are strong fundamentals backing the markets. India is in fact in a sweet spot as compared to the rest of the emerging economies thanks to the cooling oil prices and commodity prices on the one hand and higher indirect tax revenue that will help the Indian Government meet its fiscal deficit target this year.
- The consumption theme
In this situation, the one theme that is standing out at this moment is that of “consumption”. The numbers too speak volumes. The BSE Consumer Durable Index has given nearly 25 % returns from October 2014 to now, while the BSE FMCG Index has delivered returns of nearly 5%. Both these indices have outperformed the BSE Sensex that has given returns of 3.24% in the same time period.
And that is not all as far as statistical evidence is concerned. India is largely a consuming economy with a $1500 per capita income that comes on the base of an economy that is currently valued $1.8 trillion economy. With the per capita income expcted to double before the tturn of the decade, there is expected to be a significant rise in the disposable income of the population at large.
Over the festive season and indeed over the long term, the one segment to look upon as attractive is the “consumer discretionary” segment. Companies in this segment are the big retailers, service oriented companies, consumer durable firms and clothing companies. With interest rates coming down now, the basic cost of import is coming down for most of these companies. This, coupled with lower fuel prices has boosted the confidence of buyers. Investors should however look at the “consumer discretionary” segment to come into its full potential over the next two to three years. Our advice is to study the sector up close from now onwards and increase your stakes gradually rather then going the whole hog right away.
- Betting on the financial sector
The other sector that we are bullish on is banking. The long and short of it is- when consumption is the dominating theme in the Indian bourses, can finances be far behind? Despite the fact that Indian banks are still bogged down by asset quality woes, there is a definite positive turn in the banking sector as of now. The most obvious reason is the fall in interest rates, the transmission of which start reflecting sooner than later. Though the credit offtake still remains unsatisfactory growing below 10% over the past year or so, this trend may finally change, with the hefty rate cuts.
One can safely say at this point that the large private banks are going to outperform their public sector peers going ahead, as they have their asset quality under control and are being buoyed by the talks of an imprending rise in their FDI limits. The good news is that this time round it is not just the large banks but the smaller wholesale banks that will benefit quite significantly from an interest rate cut.
To conclude therefore, we would like to say that going ahead in the next six months, Indian bourses are looking very attractive and raring to go. With interest rates on the imminent downward jouney, the capex plans are being firmed up by Indian companies and this in turn is giving a boost to the consumption theme that has been India’s dominating trend over the last few years. Therefore, wait no longer! This Diwali season, gear up to gain from the Indian markets. We have already given you the themes that are dominating the markets this festive season. Any other help you need while investing, we at Beeline are more than happy to step in!