Automobile, apparel and electronics are among sectors that see a sales boost during the festival season, a time when investors expect gains in related stocks.
This year could be different: Analysts have factored in all positives and do not expect such stocks to deliver lucrative returns.
“Indian households spend across sectors like automobiles, consumer durables, and consumer staples during the festival season.
"Additionally, the wedding season boosts the jewellery, clothing, and catering sectors in the second half of any financial year.
"There may, however, be limited upside of about 5-10 per cent in select stocks, if any, as most positives are already priced-in,” said Deepak Jasani, head of retail research, HDFC Securities.
Valuation issue
Analysts don't expect auto stocks to gain much in the months ahead as passenger vehicle (PV) sales are constrained by high inventory and low demand.
Data shows that domestic PV sales fell by around 2-3 per cent year-on-year (Y-o-Y) in August, to about 355,000 units, due to low demand and reduced production by companies.
In July, PV sales were down 2.5 per cent Y-o-Y to 341,510 units.
The decline comes at a time when the auto sector is overheated on the bourses.
The Nifty Auto index is trading at a price to earnings (P/E) multiple of 24 times, higher than its five-year average of 22.4x but lower than the 10-year average of 26.3x, according to data.
Nifty50 is trading at a P/E multiple of 21x, above the five-year average and 10-year average of 19.3x and 20.7x.
Analysts believe that the PV segment could perform well if inventories are cleared.
Other segments such as jewellery, clothing and electronic appliances are trading at rich valuations too.
Kalyan Jewellers is trading at P/E valuation of 100.5x, higher than its two-year average of 51.6x.
Titan, the Tata group’s jewellery company, is trading at a P/E of 91.6x as against its two-year average of 84x.
Senco Gold is at a P/E multiple of 39.6 times relative to its three-year average of 27.8 times.
Ambareesh Baliga, an independent market analyst, said that though jewellery, electronics and apparels are trading at expensive valuations, stocks may experience a “narrative” rally if demand picks up in the festival season.
FMCG may offer value
Improved rural consumption, good monsoons and higher budgetary allocation for rural development, coupled with the festive season may drive traction for the fast-moving consumer goods (FMCG) stocks, according to analysts.
The gains, however, will be limited.
“FMCG stocks are trading at elevated valuations with the entire pack struggling with single digit volume growth.
"Long-term investors could avoid buying at these prices. Short-term traders, however, may consider adding stocks for a potential festival rally,” said G Chokkalingam, founder and head of research at Equinomics Research.
Investors may exit FMCG stocks on rise and rebalance towards companies with strong sales growth prospects.
He gave a ‘buy’ rating to Nestle India for its volume growth outlook, ‘hold’ for ITC, and ‘sell’ rating for Hindustan Unilever.
The Nifty FMCG is trading at PE valuation of 41.6x times versus its 10 year average of 32.1x times.
Consumption will be a key driver for the Indian economy, according to a report by Axis Securities.
The country by 2030 is projected to have 357 million consumers under the age of 30, making it the largest youth consumer market globally.
According to data from the National Statistics Office (NSO), private final consumption expenditure, an indicator of household consumption, surged to a
seven-quarter high of 7.4 per cent in the April-June quarter of FY25, up from 3.9 per cent in Q4 FY24.
Baliga expects a sentiment-driven rally in ITC, HUL, Dabur, Jyothy Labs, and Emami.
