While the Sensex rose 41.3% since 26 May 2014, when the NDA came to power, the BSE Consumer Durables Index and BSE Consumer Discretionary Goods and Services Index jumped 161.57% and 104.68%, respectively. The BSE Fast Moving Consumer Goods (FMCG) Index gained 67.39% in the same period.
“Barring the road blocks of demonetisation and early issues from GST implementation, there has been genuine growth in consumption demand, which is why we saw consumer stocks’ profitability growing," Kotak Mahindra Asset Management Co. managing director Nilesh Shah said.
Shah said in the past six months the quality premium has aided consumption-linked stocks, as certain bad examples in other sectors and companies helped shift the focus to high-quality consumption-linked companies.
“Lately, there has also been the TINA (There is no alternative) factor," Shah pointed out. “Investment demand was not picking up, IT and pharma were not picking up. Some investor interest also got diverted away from a few private banks. All this helped consumption stocks gain," he said.
“We do see a reasonably broad-based pick-up in activity on the ground and it is fairly spread across industries. While most recent headline numbers have been partially boosted by a favourable demonetisation impacted base quarter in most cases, even adjusting for demonetisation, there is a pick-up in volumes," Edelweiss Securities Ltd said in a note dated 22 May.
“Indeed, HUL (Hindustan Unilever Ltd) delivered 11% growth on a reasonably high base of 4% in Q4 FY18, indicating a pick-up in demand," Edelweiss Securities said.
Consumption demand, especially in rural areas, took a hard knock following the cash crunch triggered by demonetisation in November 2016, the impact of which lasted for a couple of quarters.
As that started to recede, the jittery start to GST in July 2017 resulted in supply-chain disruption in the larger spectrum, which trickled down to the retail economy and adversely impacted earnings of consumption-focused companies.
The discretionary spending of consumers is said to have picked up now not just in FMCG but also in aiding earnings performance of sectors such as paints and automobiles.
Other factors that would act as a positive sentiment booster for the consumption theme are the India Meteorological Department (IMD) forecasting a normal monsoon for 2018 and the high likelihood of a big increase in government support prices (MSP) for agricultural produce. Farm loan waivers by many states over the past one year are likely to increase the disposable income of farmers.
“Consumption has been the theme for the last few years. There is lot of long-value migration happening from public sector banks to private banks, to those focused on the retail book," said Gautam Duggad, head of research, Motilal Oswal Financial Services Ltd.
“Discretionaries have fared well. Auto numbers have been good for some time now. Rural consumption has started picking up now too. Good monsoon forecasts have been helping as well," said Duggad.
There has been a strong preference for quality in sectors and specific companies, and hence, consumption companies have been on the radar as well, analysts said.
On the flip side, surging commodity costs would keep their gross margin growth under check, but to protect operating margins, companies might resort to price increases.
In the BSE Consumer Durables Index, Whirlpool of India Ltd has been the top performer in since NDA came into power in 2014, with the stock rising more than five-fold. In the BSE Consumer Discretionary Goods & Services Index, V2 Retail Ltd is the top gainer with 2,793.46% return. Six other stocks also gained more than 1,000% in the same period.
Among BSE FMCG components, Avanti Feeds was the top gainer with 1,719.45% returns. Four other stocks in this particular sectoral index delivered more than 1,000% returns.