Sector poised to be a front-runner for first time in 4 years on strong earnings; up 67.4% YTD
With the Street discounting improvement in consumer sentiment, along with strong earnings posted by certain consumer durbale companies, the BSE Consumer Durables Index looks set to emerge as the top sectoral index for the first time in four years.
So far in year-to-date, the BSE Consumer Durables Index has gained 67.41%, with its closest competitor BSE Capital Goods gaining 57.23% during the same period.
According to experts, consumer discretionary spending is showing signs of improvement. “While on the ground not much has changed, the consumer sentiment has improved and it is evident in the strong earnings posted by some of these companies in Q2,” said S Ranganathan, head of research at LKP Securities.
The air-cooler manufacturer Symphony saw its net profit jump 51% YoY to R21.63 crore in quarter-ended September. The top-line of the company grew by 43% y-o-y to R103 crore.
For washing-machine maker Whirpool, the net profit rose by 146% y-o-y to R40.72 crore in quarter-ended September. Its topline expanded by 20.91% y-o-y to R709.14 crore in September quarter.
Experts see a release in the pent-up demand for consumer durables. “As GDP growth decelerated after FY10 and tail risks emerged (e.g. the rupee’s depreciation, government inaction), the “under-penetration” stories took a back seat. These should restart, in our view, as growth has bottomed, and perceived tail risks fall. The index of consumer durables production saw the sharpest decline recorded in FY14, and should rebound,” Credit Suisse said in a report.
Within the BSE Consumer Durables space, Symphony has been the biggest gainer in CY14 with the stock gaining 400.25% YTD. Whirpool (201.96%), PC Jewellers (188.98%), Blue Star (134.08%), Rajesh Exports (109.66%) and VIP Industries (63.56%) have been among the major gainers YTD.
Experts say that discretionary spending is likely to improve due to recovery in economy. “The impact of economic recovery on urban discretionary consumption stocks may be higher. While it is difficult to predict the timing of growth recovery, against the backdrop of falling consumer inflation and volume growth/margin expectations that are anchored to the cyclical downturn of the last two years, the recovery may be materially faster than our base case estimates,” Morgan Stanley said in a report.
Among other sectoral indices, BSE Bankex (54.83%), BSE Auto (54.23%) and BSE Healthcare (48.48%) have been the major gainers YTD.