Riding the Consumption Story

Though the quarter one results have not been very encouraging so far, yet the fresh round of relief packages to save Greece and several other European and Western Economies is likely to result in robust inflows for the emerging economies. These inflows are likely to prevent any major downside from the current levels. India being one of the larger and better performing economy is likely to witness very substantial fresh investments from Foreign Institutional Investors. So despite having enough headwinds in the form of rising interest rates, soaring inflation, lack of any imaginative or proactive policy decisions, poor governance and weak global cues, markets are not likely to fall the way most market pundits are predicting. In the short run, liquidity is what governs market direction. Since stronger hands in the form of foreign institutions are into buying and speculators are short selling, we expect good buying support coming in on all significant declines.
Furthermore any policy initiative or a successful attempt at reining in inflation would catch majority of the domestic market players on the wrong side. Pessimism is very high amongst domestic investors and there is plenty of idle money waiting on the sidelines. A sustained rally on the back of any unexpected positive trigger could start a fresh, strong bull market. Even if this scenario doesn’t play out, markets are likely to be range bound in the worst case scenario with plenty of stock specific action on the back of fresh, overseas investments.
Mid cap segment has come back into limelight after more than four years. Jubilant Foods, Lovable Lingerie, TTK Prestige, Titan, VIP Industries, Bata, Titan and Hawkins are just some examples of mid cap stocks which have generated very smart returns over the last few quarters. Most of the abovementioned stocks are from the consumption theme. We expect this trend to continue for a while. There are still plenty of well managed companies whose businesses are witnessing amazing traction on the back of growing consumption in the country. So traders and active investors can still seek out more ideas in the consumption space.
For long term investors, opportunity lies in the infrastructure and capital goods space. At some stage infrastructure spending and economic activity is likely to pick up. There is still a huge opportunity in India’s Infrastructure Space which has not been fully exploited. Companies which are well established in this space and have manageable leverage on their balance sheets are great buying opportunities for investors with a multiyear investment horizon. Due to various negative developments, most of the companies in this sector are available at very cheap valuations.