Investment theme: Consumer durables index up 15% in Jan as volumes look set to rebound

MUMBAI: As the Indian markets began its upward journey in early January despite concerns of global uncertainties, the consumer durables sector steadily marched ahead outperforming the benchmarks.

In the past one month, the BSE consumer durable index has surged over 15 per cent against a 9 per cent gain on the Sensex.
The surprise rate cut announced by the Reserve Bank of India and hopes of further cuts in the coming quarter have been the major contributor towards a rally in these stocks. There are expectations that volumes will pick up as the consumers’ spending power increases.



“Urban consumption demand in India is set to rebound smartly as we move deeper into a macro recovery. Our 6th Urban Consumer Survey clearly shows that consumer confidence is on the rise and with it an attendant resurgence in discretionary spends,” said a Religare report.

According to the brokerage, the urban growth had slowed down in line with softer GDP growth. However, it is in the high single digits at the moment. “With a likely revival in the economy from 4.7 per cent in FY14 to 6.5 per cent in FY16, we expect the urban demand growth to retrace to ~15 per cent levels over the next couple of years, accompanied by higher discretionary spends from FY16,” the report added.



The brokerage expects market leaders such as Asian Paints, Bata and Jubilant Foodworks to consolidate their strong positions and deliver ahead-of-industry growth in respective segments. It expects Titan to perform well too, but believes positives are already priced in.
“We raise earnings estimates and targets for our consumer discretionary coverage,” the brokerage said.


Meanwhile, Axis Capital’s channel check suggests demand recovery is 6-9 months away. It will be led by favorable macros (easing interest rates and inflation) as well as a pick-up in construction activity due to the government’s focus on housing.

“FY16E is likely to witness double-digit volume growth. Further, over February-May 15, the industry is expecting good volume uptake, triggered by the wedding and summer seasons (Q1 accounts for 35-40% of annual sales for white good players) and the World Cup,” the report said.

According to the brokerage, Whirlpool, TTK Prestige and Havells would be the key beneficiaries of a revival in volume growth in FY16.

“We recommend ‘BUY’ on Havells, and ‘HOLD’ on Whirlpool and TTK Prestige as we believe the price appreciation factors in steady volume revival and margin expansion over the near term,” the report said.