Invest in companies whose businesses get a boost from the season
Invest in companies whose businesses get a boost from the season.
Early rains have begun but the heat has not yet subsid-ed. The scorching summer - which will persist for some more months - is an endurance test in most parts of the country. But it has its positive spin-offs: summer solutions bring brisk business to companies in the consumer dura-ble space selling cooling appliances, and to travel-related companies, perking up the stocks of the listed companies in these spaces. If you are an equity investor, and you are able to time it right, you can make a neat pile by investing in some summer-demand related stocks that normally register an uptrend between May and October. Experts feel that both consumer durables and the tours and travel business should do well this season. With early trends indicating a nor-mal monsoon, the economy overall should, despite the hardening inter-est rates, grow at a healthy rate of eight per cent leading to signifi cant increase in the demand for products and services in these sectors. Howev-er, one needs to evaluate the fundamental story behind specifi c stocks before making investments.
Among consumer durables, stocks of air-conditioner and cooler manufacturers such as Whirlpool, Bajaj Electricals, Videocon, Voltas and Blue Star are listed. AC and cooler scrips have around 30 per cent of the weightage for white goods in the BSE Consumer Durables, or CD, index.
Past record
Since its inception in 1999, the BSE CD index gained on seven occasions during the summer months till 2010 (see Summer Spike). During May-October 2010, the BSE CD index surged 1,860 points, or 40 per cent, to 6,544.48 against 45.59 per cent to 6,239.69 during 2010/11. The index gained 1,516 points, or 83 per cent, to 3,348.21 during May to October 2009 against a full-year growth of 153 per cent to 4,220.71 during 2009/10.
"Season-related products, particularly ACs, refrigerators, fans and coolers are in high demand for obvious reasons," says Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities. "With increased prosperity in semiurban and rural areas, coupled with generally increasing income and aspiration levels, consumer durables stocks are expected to perform well on the back of increased demand." Bandyopadhyay adds that these stocks could get a boost towards the end of the summer season as well due to festive rush.
According to a McKinsey Global Institute, or MGI, study titled Bird of Gold: The Rise of India's Consumer Market, the total consumption is likely to quadruple making India the fi fth largest consumer market by 2025. Urban India will account for nearly 68 per cent of consumption growth, while rural consumption will grow by 32 per cent by 2025. "Overall, the country has witnessed decent hikes in salary across various sectors such as IT and pharmaceuticals. This can lead to a rise in purchasing power of consumers, which can help the consumer durables segment to remain fi rm," says Vikrant Kashyap, Research Head, Equity, Stop Loss.
During May to October 2010, Whirlpool soared 62.12 per cent to Rs 300.25, followed by Voltas (37.95 per cent to Rs 245.20), Bajaj Electricals (20 per cent to Rs 271), Blue Star (10 per cent to Rs 454.10) and Videocon (nine per cent to Rs 253.15). In 2008, however, due to the global fi nancial crisis, all consumer durables majors failed to perform. For example, Whirlpool's share prices dipped 24 per cent from Rs 48.45 to Rs 36.80. Videocon's scrip dipped as much as 68.42 per cent from Rs 378 to Rs 119.41 during May-October 2008. On April 28, 2011, Whirlpool and Videocon were trading at Rs 281.15 and Rs 189.80, respectively.
Demand for summer-related products are seasonal or cyclical. Alex Mathews, head of research at Geojit BNP Paribas Financial Services, says: "Different strategies should be adopted while investing in cyclical stocks. Most of the stocks' performances are positively correlated with the economy, and hence during a crisis they dip heavily."
"For a short-term investment, Voltas and Bajaj Electricals can be good picks," says Rajesh Jain, Executive Vice President and Head of Retail Research, Religare Securities. Demand for consumer-related goods has remained buoyant as evident from the use-based break-up of the index of industrial production, or IIP. The pace of growth of consumer durables and intermediate goods in the IIP remained steady in February at 23.4 per cent (23.3 per cent in January) and 8.4 per cent (8.3 per cent in January), respectively. The growth of basic goods and consumer non-durables eased somewhat in February to 5.9 per cent (from 7.6 per cent in January) and 6.1 per cent (from 7.7 per cent in January).
Market experts believe that before investing in consumer durables goods investors should look into the company's distribution strength the market positioning of its products and the track record and credibility of its management. They should also measure the relative valuation of the company against similar stocks.
Another destination
During summers, many people surf travel websites or approach travel agents to plan their vaca-tions, which can benefi t these com-panies as well. For tour and travel companies, the summer months are the peak business season as it coincides with school holidays.
Anil Khandelwal, Chief Finan-cial Offi cer, Cox & Kings, says: "The summer months are the peak holi-day season, beginning in April and stretching to July sometimes. These months account for nearly 65 per cent of the holiday bookings of the entire fi nancial year." Anuj Razdan, Manager, Flight Centre India, an arm of Australia's Flight Centre, says: "We generally experience an upsurge in business to the tune of 40 to 50 per cent dur-ing the April to June quarter over the previous quarter. If we look at the industry trends, domestic travel is increasing at about 20 per cent annually.
"Not surprisingly, the increased business prospects also result in a buoyant outlook for the stocks. Between May and October 2010, stock prices of travel companies such as International Travel House surged 61 per cent to Rs 279.20 fol-lowed by Transcorp International (25.33 per cent to Rs 72), Cox & Kings (14.61 per cent to Rs 564.75).
However, Mega Corporation registered modest gains of 1.74 per cent to Rs 1.17, while stocks of Tho-mas Cook and Trade Wings failed to perform. Thomas Cook and Trade Wings declined 1.41 per cent and 32 per cent to Rs 66.65 and Rs 131.35, respectively. Stocks such as Interna-tional Travel House, Mega Corpo-ration and Thomas Cook had also shown strength during May to Octo-ber 2009 with a jump of 50 per cent, 146 per cent and 29.67 per cent toRs 110.95,Rs 1.92 and Rs 54.40, respectively.
"While the frontline companies in this segment may be fully val-ued, investment in stocks such as Transcorp International at current levels is looking attractive," says Bandyopadhyay of Destimoney.During the June 2010 quarter, Cox & Kings registered net sales of Rs 78.64 crore, up 71 per cent, against Rs 46.02 crore in the March quarter of the same fi nancial year. Others like Thomas Cook, Trade Wings and International Travel House booked topline fi gures of Rs 80.55 crore (up 60.49 per cent), Rs 3.60 crore (up 24.14 per cent) and Rs 32.98 crore (up 0.33 per cent), respectively against the March 2010 quarter. Anand Kuchelam, Vice Presi-dent, Research, Padmakshi Finan-cial Services, says: "Stocks in this space are likely to do well due to an increase in domestic tourism. Thomas Cook and Cox & Kings are likely to outperform." So, if you are chalking out your plans, investing in some of these stocks might get you back some of the money you will be spending either to protect yourself from the heat or to enjoy a break.
Among consumer durables, stocks of air-conditioner and cooler manufacturers such as Whirlpool, Bajaj Electricals, Videocon, Voltas and Blue Star are listed. AC and cooler scrips have around 30 per cent of the weightage for white goods in the BSE Consumer Durables, or CD, index.
Past record
Since its inception in 1999, the BSE CD index gained on seven occasions during the summer months till 2010 (see Summer Spike). During May-October 2010, the BSE CD index surged 1,860 points, or 40 per cent, to 6,544.48 against 45.59 per cent to 6,239.69 during 2010/11. The index gained 1,516 points, or 83 per cent, to 3,348.21 during May to October 2009 against a full-year growth of 153 per cent to 4,220.71 during 2009/10.
"Season-related products, particularly ACs, refrigerators, fans and coolers are in high demand for obvious reasons," says Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities. "With increased prosperity in semiurban and rural areas, coupled with generally increasing income and aspiration levels, consumer durables stocks are expected to perform well on the back of increased demand." Bandyopadhyay adds that these stocks could get a boost towards the end of the summer season as well due to festive rush.
Sudip Bandyopadhyay, MD & CEO, Destimoney Securities
During May to October 2010, Whirlpool soared 62.12 per cent to Rs 300.25, followed by Voltas (37.95 per cent to Rs 245.20), Bajaj Electricals (20 per cent to Rs 271), Blue Star (10 per cent to Rs 454.10) and Videocon (nine per cent to Rs 253.15). In 2008, however, due to the global fi nancial crisis, all consumer durables majors failed to perform. For example, Whirlpool's share prices dipped 24 per cent from Rs 48.45 to Rs 36.80. Videocon's scrip dipped as much as 68.42 per cent from Rs 378 to Rs 119.41 during May-October 2008. On April 28, 2011, Whirlpool and Videocon were trading at Rs 281.15 and Rs 189.80, respectively.
Demand for summer-related products are seasonal or cyclical. Alex Mathews, head of research at Geojit BNP Paribas Financial Services, says: "Different strategies should be adopted while investing in cyclical stocks. Most of the stocks' performances are positively correlated with the economy, and hence during a crisis they dip heavily."
"For a short-term investment, Voltas and Bajaj Electricals can be good picks," says Rajesh Jain, Executive Vice President and Head of Retail Research, Religare Securities. Demand for consumer-related goods has remained buoyant as evident from the use-based break-up of the index of industrial production, or IIP. The pace of growth of consumer durables and intermediate goods in the IIP remained steady in February at 23.4 per cent (23.3 per cent in January) and 8.4 per cent (8.3 per cent in January), respectively. The growth of basic goods and consumer non-durables eased somewhat in February to 5.9 per cent (from 7.6 per cent in January) and 6.1 per cent (from 7.7 per cent in January).
Market experts believe that before investing in consumer durables goods investors should look into the company's distribution strength the market positioning of its products and the track record and credibility of its management. They should also measure the relative valuation of the company against similar stocks.
Another destination
During summers, many people surf travel websites or approach travel agents to plan their vaca-tions, which can benefi t these com-panies as well. For tour and travel companies, the summer months are the peak business season as it coincides with school holidays.
Anil Khandelwal, Chief Finan-cial Offi cer, Cox & Kings, says: "The summer months are the peak holi-day season, beginning in April and stretching to July sometimes. These months account for nearly 65 per cent of the holiday bookings of the entire fi nancial year." Anuj Razdan, Manager, Flight Centre India, an arm of Australia's Flight Centre, says: "We generally experience an upsurge in business to the tune of 40 to 50 per cent dur-ing the April to June quarter over the previous quarter. If we look at the industry trends, domestic travel is increasing at about 20 per cent annually.
"Not surprisingly, the increased business prospects also result in a buoyant outlook for the stocks. Between May and October 2010, stock prices of travel companies such as International Travel House surged 61 per cent to Rs 279.20 fol-lowed by Transcorp International (25.33 per cent to Rs 72), Cox & Kings (14.61 per cent to Rs 564.75).
However, Mega Corporation registered modest gains of 1.74 per cent to Rs 1.17, while stocks of Tho-mas Cook and Trade Wings failed to perform. Thomas Cook and Trade Wings declined 1.41 per cent and 32 per cent to Rs 66.65 and Rs 131.35, respectively. Stocks such as Interna-tional Travel House, Mega Corpo-ration and Thomas Cook had also shown strength during May to Octo-ber 2009 with a jump of 50 per cent, 146 per cent and 29.67 per cent toRs 110.95,Rs 1.92 and Rs 54.40, respectively.
"While the frontline companies in this segment may be fully val-ued, investment in stocks such as Transcorp International at current levels is looking attractive," says Bandyopadhyay of Destimoney.During the June 2010 quarter, Cox & Kings registered net sales of Rs 78.64 crore, up 71 per cent, against Rs 46.02 crore in the March quarter of the same fi nancial year. Others like Thomas Cook, Trade Wings and International Travel House booked topline fi gures of Rs 80.55 crore (up 60.49 per cent), Rs 3.60 crore (up 24.14 per cent) and Rs 32.98 crore (up 0.33 per cent), respectively against the March 2010 quarter. Anand Kuchelam, Vice Presi-dent, Research, Padmakshi Finan-cial Services, says: "Stocks in this space are likely to do well due to an increase in domestic tourism. Thomas Cook and Cox & Kings are likely to outperform." So, if you are chalking out your plans, investing in some of these stocks might get you back some of the money you will be spending either to protect yourself from the heat or to enjoy a break.
Courtesy: Money Today
