Analysts expect customers to skip big-ticket retail purchases for the coming months and settle for moderately priced indulgences, or what's called a 'Lipstick Effect.'
Given the picture of an economic recession portrayed by most forecasters, the story of consumption in India still seems to be going high. The Nifty Consumption Index, a National Stock Exchange (NSE) consumer-driven stock gage, has risen by 42 percent since March 23, when the market reached its recent low compared to a 51 percent increase in the Nifty 50.
Although the margin of underperformance relative to the benchmark index might not be much, what is important to note is that all stocks comprising the Nifty Consumption index have since yielded a positive return.
Among the top winners were Mahindra & Mahindra (M&M), Hero MotoCorp, Tata Power, Britannia Industries, Maruti Suzuki, Jubilant FoodWorks and Godrej Consumer, rallying 57 per cent to 105 per cent after low March 23rd, ACE data show.
Analysts expect Indian consumers to forget big-ticket retail purchases for the coming months and settle for moderately priced indulgences, or what's called a 'Lipstick Effect.'
According to this hypothesis, also during a recession, economic downturn, and even during periods when they have little personal disposable income, consumers will still be willing to spend money on small indulgences Because of the lockout, there is pent-up demand.
There are three forms of market patterns that are currently operating in tandem-standard market, pent-up demand, and inventory build-up. We've seen a case of pent-up demand in automobiles. Because of the lockdown nobody bought anything in April and May 2020. That said, one major thing now is personal mobility. It must also be remembered that India is an economy built on 'important' and not 'discretionary' products being consumed. If the demand is completely back, the business and economic growth would be great, "argues Raamdeo Agrawal, co-founder and joint managing director, Financial Services Motilal Oswal,.
"We can't paint the entire sector and the pattern of consumption with the same brush. Consumers will avoid lumpy / big ticket purchases and concentrate on smaller products even if they are more indulgent – a classic 'lipstick effect.' Stocks of fast-moving consumer goods (FMCG) will continue to do well, because demand is more or less intact. Investors will look for stability of demand, valuation of consumer stocks and firm balance sheet strength before investing in consumer-driven stocks now, "suggests G. Chokkalingam, founder of Equinomics Science, and chief investment officer.
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