Consumption-backed stocks in demand after note ban

MUMBAI: Stocks of consumptionoriented companies have surged since the beginning of the year as investors, heartened by the weak impact of demonetisation on sales, look forward to a spending boom, fuelled by a good monsoon and a wage hike for government employees.

For the year-to-date, the BSE consumer durables index was the top gainer with a nearly 21% rise post demonetisation, while the BSE consumer discretionary goods and services index and BSE FMCG (fast-moving consumer goods) index rose 11.61% and 9.66%, respectively, outperforming the 30-share benchmark Sensex, which logged a 6.41% rise.

“This year is going to be ruled by the consumption theme in India,” said Ravi Sundar Muthukrishnan, co-head of research, ICICI Securities Ltd, adding that his brokerage firm is overweight on consumer durables, consumer discretionaries as well as the FMCG sector. Others shared the view. “I think these three sectors will do well,” said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services Ltd.

“I think demonetisation had a temporary impact on the consumption theme. With lower interest rates, people believe it will be beneficial for consumption over the long term, more so for consumer durables,” Rawal said, explaining the surge in pri- ces of stocks of companies manufacturing consumer durables.

The top performers among the BSE consumer durables index so far this year have been Nilkamal Ltd, Crompton Greaves Consumer Electricals Ltd and Titan Co Ltd, which have gained 37.34%, 34.51% and 32.23%, respectively.

LT Foods Ltd, Venky’s India Ltd and Dhampur Sugar Mills Ltd jumped 108.80%, 62.72% and 55.91%, respectively, for the yearto-date, and were the top gainers among BSE FMCG index constituents.

Future Enterprises Ltd, Vakrangee Ltd and Unitech Ltd were the top gainers for this year among constituents of the BSE consumer discretionary goods and services index. They gained 77.25%, 71.67% and 63.75%, respectively.

Rawal said FMCG and discretionaries were also set to benefit due to more money in the hands of consumers, following the implementation of the wage hike recommended by the Seventh Pay Commission.Consumption stocks were set to look up in the second half of 2016 due to the wage hike, and a good monsoon that followed two years of drought. But the note-ban announcement came on November 8.

“At that point in time (when demonetisation was announced), the fear was that the recovery (in the consumption-linked sectors) is going to be slow. We also had expected the recovery to come in only in the second half of 2017,” said Muthukrishnan. “However, earnings numbers for the current quarter in the consumption pack haven’t been as dismal as expected.”