How is the market spirit this festive season?

The festive mood among consumers has been fairly tepid this year, compared to previous years. Let us look at the pros and cons for the market in this festive season.

Oct 22, 2019 10:10 IST India Infoline News Service

“How is the Josh?” may be the wrong question to ask retail consumers during this festival season. Consumer sentiments have taken a hit for a variety of reasons and that is expected to hit the festival mood. There is a weird connection between festivals and consumer demand the world over. Be it Christmas in the US and Europe or Single’s Day in China or Dussehra and Diwali in India, there has long been a correlation between consumption and festivities across the world. From that perspective, the festive mood among consumers has been fairly tepid this year, compared to previous years. But does that apply to the stock markets too?

If one were to look at the stock market levels, the Sensex is just about 2000 points shy of its all time high while the Nifty is about 400 points short. Stock market analysts are bombarded with questions like “When will Sensex touch 50,000?” or “When will the Nifty scale 15,000?”. It may be too premature to attempt to answer these questions. But let us first look at the pros and cons for the market in this festive season.

What could work against the market mood this festive season?
The shopping queues at the malls and the footfalls have a slightly discouraging story to tell. Here is what could actually work against the market.
  • Auto demand has been consistently falling for 11 months in succession and that is not showing any signs of revival. In the last few months, the auto sales have fallen by 25-30% each month on a YOY basis. That is not great news considering that cars are the big attractions during the festive season.
  • The weak demand has had a negative side-effect and that is on jobs. It is estimated that close to a million direct and indirect jobs have vanished in the auto and ancillary sector. That not only impacts purchasing power but also makes consumers in general more cautious and forces them to conserve cash rather than spend it.
  • Valuations could be another matter of concern this festive season. The dichotomy between the big names and the mid caps has widened and most of the valuation accretion in the last one year has been cornered by just about 8-10 large stocks. So the problem is more than just market P/E.
  • Lastly, liquidity remains a concern. In the previous years, consumer demand was fuelled by easy availability of low cost funding. That has changed post 2018 and the recent tightness in liquidity has only worsened matters for consumption.
But there are also some positives for markets this festive season
However, markets have shown their ability to ring-fence from the sentiments at the ground level and look at the bigger picture ahead. This is what could work for market sentiments.
  • We are yet to factor in the full impact of the cuts in corporate tax rates. A total of $20 billion released as tax breaks is a lot of value for the market. That could easily add $400 billion to $500 billion to the overall market cap. We have only scratched the surface in the last one month.
  • Global uncertainties are finally receding. The US and China have taken the first step towards a trade resolution. The trade war has already taken a toll of $800 billion on global GDP and this deal should arrest that trend. Also, the BREXIT is now looking to proceed amicably and bring more certainty to Europe. This is notwithstanding the short term hiccups.
  • What we have seen in the last few weeks is that there is still a ready market for a product that offers value for money. Look at the cases. Flipkart and Amazon sold products worth $3 billion during the Dussehra sales. This may not be anywhere close to Alibaba’s Single’s Day sales of $25 billion but there is demand at the right price. Indian cars like MG and Kia are still attracting waiting period. If the IRCTC IPO is any indication, there is still massive IPO appetite at the right price.
In terms of consumer demand, this festive season could disappoint relative to previous years. But the market is likely to focus on the bigger picture ahead. And, that is definitely bright!

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