Indian Stock Market: ETMarkets Smart Talk: 5 Things Driving the Rally in Consumer Discretionary: Deepak Jasani

“Backlog demand after two years impacted by Covid is driving discretionary demand across the board,” said Deepak Jasani, Head of Retail Research, Securities.

In an interview with ETMarkets, Jasani said: “Higher participation of local investors also leads to market resilience”.

Edited excerpts are below:

India has emerged as a bright spot in the global arena. What drives outperformance? How do you see the markets in the medium term?

India has managed its macro situation quite credibly over the past few quarters at a time when the global disruption of inflation, geopolitical conflicts, supply disruptions and interest rate hikes have hit economies around the world.

This is reflected in the currency, inflation rate and interest rates, which have been resilient compared to other competing economies or even some developed economies.

The Indian economy is more inward-looking and more dependent on the local large population. Indian companies have benefited in recent years due to reforms and cost cutting/leverage reduction.

This has resulted in India being a continuous recipient of foreign flows over time (barring a few months of outflows).

Indian secondary markets have outperformed other markets and despite the fact that valuations are at the upper end of historical premiums to other economies, we do not see any major sell-off in the coming months, although some correction may occur overdue.

The higher participation of local investors also contributes to the resilience of the markets.

How do you identify potential wealth creators of the future? Which filters do you use?

Changes in consumption patterns or baskets of products and services are one way to spot macro opportunities.

At the micro level, there is management that responds/adapts to new opportunities while being prudent in capital allocation.

Market share gains, timely CAPEX, and tighter working capital metrics are other parameters to spot likely wealth creators.

What drives the sugar industry? Many sugar stocks have made new 52-week highs.

The sugar sector, which was treated as a cyclical or politically influenced sector, has now turned into a structural story due to the government’s ethanol push. Institutional holdings in these stocks remain low.

Movements in the sugar sector are driven by changes in sugar prices and/or local demand, changes in ethanol sourcing and/or its prices, etc.

Also, we always experience sector rotations which can cause the sector to gain or lose popularity from time to time. Due to the above changes, the sector is now given a higher valuation than in the past.

There is a lot to do in the consumer discretionary space. What is driving the rally in this sector and are there any stocks that look attractive?

Here are some reasons for the great interest in the industry:

a) Backlog demand after two years impacted by Covid is driving discretionary demand across the board.

b) Increasing available quantity in the urban areas (due to past savings and salary increases) and rural areas (due to MSP increases,

c) Government subsidies and higher crop yields are helping to increase demand in this sector.

d) The availability of credit has become easier over time to buy durable goods.

e) Penetration of many durable goods in India is low and from there there is room for growth in most categories.

Moody’s maintains India’s rating and sees minimal impact of inflation. Some analysts are calling this a golden decade for India. What are your views?

While India’s relatively better standing is for all to see, it is perhaps a bit early to call this India’s golden decade. India still has many tougher reforms to implement, for which we need political continuity.

We also have a growing trade deficit which can create problems for reserves and the currency if not corrected in time. The budgetary situation (center + states) is still precarious.

Apart from that the Indian government. is on the right track and we hope that, due to some tough measures coupled with a twist of providence, that expectation will materialise.

How do you rate the small and mid-cap segment? We are seeing some outperformance – do you think the trend will continue and many mid caps have the potential to become large caps given the strong economy?

In any cycle, there will be many mid-caps that become large-caps. India has a variety of listed companies in different cap buckets and sectors.

Over the years, promoters have recognized the lure of market capitalization and have changed the way they operate to be more transparent and fair to fellow shareholders.

Economic growth and formalisation/shift from disorganized to organized will result in better times for public companies – both large and mid/small caps.

All of this means that the space will remain in the spotlight, although there will always be black sheep.

This space will evolve versus large caps in turn, outperforming at times and underperforming at times depending on market risk appetite and institutional capital flows relative to local non-institutional capital flows.

Number of Demat accounts crosses the 10 Cr mark – a milestone. What advice would you give to someone under the age of 25 who wants to invest in the stock market? Can he dream of becoming a crorepati and what would it take for that to happen?

India’s number of Demat accounts surpassed 100 million for the first time in August 2022. Over 2.2 million new accounts — the most in three months — were opened in August after falling in June and July due to weak market conditions.

But a rebound in secondary markets and the resumption of IPOs have led to higher account openings in August.

Whilst we can see fluctuations in the number of new account openings from month to month, equities as an asset class are becoming popular among large sections of the population across the country as a means of building wealth, ensuring that the number of Demat accounts has been increasing year on year.

Young investors could start investing in mutual funds through SIP, and once they develop stock picking and money management skills, decide to build wealth directly through stocks – a lump sum of SIP into stocks.

In order to accumulate a large sum over a sustained period, an investor would need to contribute an increasing amount each month/quarter and markets must be supportive and not stagnant or remain negative for an extended period of time.

(Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own. These do not represent the views of Economic Times)

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