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

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“Pent-up demand after two years of Covid impact is driving demand across the board in the discretionary space,” says Deepak Jasani, head of retail research, securities.

In an interview with ETMarkets, Jasani said, “Higher participation from local investors also drives market resilience.”

The edited excerpts are below:

India has proven to be the beacon of hope on the world stage. What drives outperformance? How do you see the markets in the medium term?

India has managed its macroeconomic situation quite credibly over the past few quarters at a time when global turmoil from inflation, geopolitical strife, supply disruptions and rising interest rates have had an impact on economies around the world.

This is evident from its currency, inflation rate and interest rates which have held up against other competing economies or even some developed economies.

India’s economy is more inward looking and more reliant on the large local population. Indian companies have benefited in recent years from reforms and cost cutting/cutting levers.

This has made India a continuous recipient of foreign flows over time (except for a few months of releases).

Indian secondary markets have outperformed other markets, and despite valuations being at the upper end of the historic premium to other economies, we don’t expect a selloff in the coming months, although some correction may be overdue.

The increased participation of local investors is also reflected in the resilience of the markets.

How to spot the potential wealth creators of tomorrow? What filters do you use?

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

At the micro level, management that is responsive/adaptive to emerging opportunities and at the same time prudent in capital allocation is the one to follow.

Market share gains, timely CAPEX and tightening working capital metrics are other metrics for spotting likely wealth creators.

What is driving the sugar sector? Many sugar stocks hit new highs in 52 weeks.

The sugar industry which was treated as a cyclical or politically impacted industry has now turned into a structural story due to the push of ethanol by the government. Institutional ownership of these stocks continues to be low.

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

Additionally, we continue to see sector rotation which can cause the sector to enter or fall out of favor from time to time. The sector now gets a higher valuation than in the past due to the above changes.

There is a lot of action 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 why there is a lot of interest in the sector –

a) Pent-up demand after two years of Covid impact is driving demand across the board in the discretionary space.

b) Increase in the amount available in urban areas (due to previous savings and salary increases) and rural areas (due to MSP increases,

c) Government subsidies and increased agricultural production) help to increase demand in this sector.

d) Availability of credit has become easier over time to purchase durable goods.

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

Moody’s retains India’s rating and sees minimal inflation impact. Some analysts call it a golden decade for India. What are your views?

Although India’s relatively better situation is visible to all, it is perhaps a little early to call this India’s golden decade. India still has to carry out many more difficult reforms 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 (Centre + States) remains precarious.

That said, the Indian government. is on the right track, and we hope that this expectation will be realized through tough measures coupled with the providential turn of events.

What is your opinion on the small and mid cap space? We see a slight outperformance. Do you think the trend will continue and that as the economy strengthens many mid caps have the potential to become large caps?

In each cycle, there will be many mid-cap companies that will become large-cap companies. India has a wide variety of listed entities in different capitalization segments and sectors.

Over the years, promoters have realized the appeal of market capitalization and have changed their past methods to become more transparent and fair to other shareholders.

The growth of the economy and the formalization/shift from unorganized to organized organization will lead to better times for listed companies, whether large cap or mid/small cap.

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

This space will evolve in turn against large caps with periods of outperformance and underperformance depending on the risk appetite of the markets and institutional flows vis-à-vis local non-institutional flows.

The number of demat accounts crosses the 10 cr mark – a milestone. What would you advise someone under 25 who wants to invest in the stock market? Can he dream of becoming a crorepati and what would it take?

India’s demat account topped the 100 million mark for the first time in August 2022. More than 2.2 million new accounts – most in three months – were opened in August after a decline seen in June and July due to weak market conditions.

But a recovery in secondary markets and the resumption of IPOs led to an increase in account openings in August.

Although we may see volatility in the number of new account openings from month to month, equities as an asset class are becoming increasingly popular among a large portion of the population across the country to create wealth, ensuring that the number of demat accounts is headed higher year after year.

Young investors could start investing via SIP in mutual funds and once they have developed stock picking skills and developed money management skills, opt for direct wealth creation via stocks – a lump sum of SIP in shares.

To accumulate a large sum over a period of time, apart from the above, an investor would need to contribute an increasing amount each month/quarter and the markets would need to be favorable and not stagnate or remain down for long periods of time.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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