Inflation dip & preference for premium products makes stocks driven by consumption attractive

ET INTELLIGENCE GROUP: Of the three crucial factors — consumption, investment and government spending that boost growth — consumption is showing conspicuous signs of revival.

Buoyed by a dip in inflation and growing preference for premium products, discretionary spending, across several sectors, has been rising in the past three quarters. Look at the numbers. Petrol consumption is at a decadal high and has been growing in double digits for more than two years.

This is not a function of cheaper fuel but is almost entirely driven by sustained demand for cars and scooters. In the aviation industry, where softening fuel prices led to competitive fares, passenger traffic has been rising 20% or even more during the past five quarters.

Even though several banks are saddled with sticky loans and poor credit demand from corporates, retail loans have grown 16% in the last quarter. Credit card outstanding, thanks partly to the surge in ecommerce, has risen 22% in the September quarter.

Since April, banks with comparatively high retail exposure, such as HDFC Bank and IndusInd Bank, have grown their overall loan book more than the industry. Unsurprisingly many fund managers are playing the “consumption over capex” story -- increasing their funds’ exposure to stocks that are directly or indirectly linked to consumer spending.

Thus, stocks like Maruti, HUL, Asian Paints, TVS Motors, and HDFC Bank are trading at a premium valuation to their historical averages. In the world of consumer staples, same-store growth (SSG) — a key parameter to measure urban consumption — hints at decent recovery.