With the mounting restrictions on travel coupled with the mass shutdown of malls, cinema halls and other public places expected to hit economic growth this year, equity investors are making a clear distinction between companies that produce everyday essentials like groceries and those who depend on discretionary spending.
A perusal of the stock performance of FMCG companies and those in the luxury and discretionary goods segment since February 19 this year shows that the ongoing market rout has been significantly harder on the latter.
For instance, while the fall in the value of well-diversified FMCG majors like Marico (-16.47%), Godrej Consumer (-15.47), Dabur (-15.33), Colgate Palmolive (-14.31), Nestle India (-13.31), HUL (-12.4) and Britannia Industries (-12.36) has been contained at below 20 per cent, firms depending on consumer discretion have dived sharply.
On BSE, multiplex-oriented firms like PVR Ltd (-60.97%) and INOX Leisure (-39.79) have been some of the worst impacted, while those like Domino’s Pizza-owner Jubilant Foods (-42.52%), textile major Grasim Industries (-26.5), luxury accessory firm Titan (-24.67), footwear major Bata India (-27.44), consumer appliance maker Crompton Greaves (-32.85) and AC-maker Voltas (-18.86) have also done poorly.
A recent survey done by online firm LocalCircles indicates that about 45 per cent of households surveyed plan to reduce discretionary spending, including activities like eating out, going to the movies, and goods like luxury products, confectionery, fashion, etc.
Nine per cent say they plan to reduce these spends by over 75 per cent over the next four months, while 10 per cent plan to tighten belts by 50-75 per cent.
Analysts say the impact on discretionary goods demand is likely to continue until larger concerns over the economy have been allayed, since any decrease in cash in the hands of consumers will have an immediate impact on such non-essential products. For FMCG firms, the plunge in oil prices is also likely to mitigate some impact on profits.