Consumption: Structural uptrend intact
Companies are expecting festive season sales to be 30-40% higher than their pre-Covid levels aided by higher growth in premium category products.
- BSE Consumer durable index has given a breakout from the falling channel signalling an end of the eight-month corrective phase and resumption of a structural uptrend
- Consumer sentiment is strongest since pre-Covid years as this is the first festive season after complete unlock and life returning to normalcy. This elevated sentiment coupled with normal monsoon for a fourth year is expected to drive demand across urban and rural pockets
- Share prices of consumer durable companies have a well-established negative correlation with industrial metal prices. The recent sharp correction in industrial metal and Brent crude prices are expected to act as a catalyst. In this context, the ratio chart of the sector against LME metals index (composite for industrial metals) is a lead indicator. In the last decade, on two occasions (2017 and 2019), the breakout in ratio led to at least 80% rise in the index from breakout level over the subsequent couple of years. At present, the ratio has already surpassed multi-month highs, indicating the outperformance of the sector in coming quarters
We expect the consumption theme to gain further traction and outperform over the next couple of quarters amid structural uptrend. Technically, we remain constructive on Asian Paints, Titan Company, Bajaj Finance, Havells, Bajaj Electricals, TTK Prestige, Trent, Bata India, Voltas, Astral, VIP Industries and expect them to relatively outperform in the coming years.
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