Do Markets Perform Well In Diwali?

Kotak Insights | Date 10/11/2023

About 95 million customers visited Amazon India within the first 48 hours of the launch of its festive sale event - ‘Great Indian Festival 2023’.

What gives?

You might think it’s the e-commerce buying spree. But that’s only a part of the story.

You see, India’s strength lies in its domestic demand and consumption.

Unlike other export-oriented economies of East and Southeast Asia, or the investment-driven China, it is the domestic consumption that powers India’s growth.

The reason we bring this up is because this trend is picking up as we read this.

It’s the festive season!

And it is an important occasion every financial year that plays a pivotal role in accelerating economic growth on the strength of domestic demand and consumption.

Let us look at some numbers to back this up…

Retail Sales Soar

The present fiscal year has seen a remarkable growth in retail sales.

Retail sales in 2023 started with a 7% year-on-year growth from April to June. And they kept at it by accelerating that number to 9% in July.

As per Retailers Association of India, September 2023 also showed a 9% YoY growth, with quick service restaurants reporting a growth of 15%, foods & grocery and sports goods signalling 14% growth each, followed by jewellery at 13%.

As we move ahead this trend is likely to continue as retail sales tend to pick up during the festivals.

Rising Consumption Trends

Then we have the consumption trend.

The upper-middle class and the middle-class segments tend to increase their spending during festivals. And as per the data, the tax filings by high-income earners has outstripped those with less than Rs 5 lakh in annual income over the last few years.

From 3.8 million in FY12 to 18 million in FY21, individuals in India earning above Rs 5 lakh have surged 5 times.

Moreover, as per a report by BMI, India’s consumer market is set to become the world’s third largest by 2027 as the number of middle to high-income households rise.

All this says that there is an increased propensity to consume and invest for these households.

This shift is expected to lead the consumption demand for a wide range of sectors ranging from real estate, jewellery, clothing, consumer durables, and IT products.

Even the e-commerce industry which includes companies like Amazon India and Flipkart are looking forward to record-breaking sales this festive season.

Confidence on the Rise

Next up, we have the consumer confidence data.

As per the RBI, consumer confidence touched a 4-year high in September, continuing its recovery path after a brief pause in July.

Lastly, the above trends are also expected to prevail post Diwali.

Why, you ask?

Because we have the wedding season coming up! It commences this month and is clashing with the festive rush. All that could mean a surge in demand for goods and accessories for a few coming months.

So, all in all, the economy could witness an uptick again in this quarter.

But What about the Markets?

Are they also expected to witness an uptick this festival season?

Let us have a look at how things have been for the markets since last Diwali…

The Hindu accounting year – Vikram Samvat 2079 – which began from the last Diwali, was remarkable.

Factors that Drove Samvat 2079

Samvat 2079 gave the Indian indices Sensex and Nifty their all-time peaks. The Sensex touched an all-time high of 67,927 in September 2023, while the Nifty crossed the 20,000 mark.

The year also gave investors and traders quite a few multi-bagger stories to share.

Smallcap and midcap stocks outperformed the Nifty by a wide margin.

The above rally can be attributed to the abundance of liquidity in the market. Moreover, the accommodative monetary policy, increased retail investor participation, and a host of government initiatives also helped this uptrend.

Then we have the long list of initial public offerings (IPOs). The year saw a host of companies turning to primary markets and getting a good response to their offerings.

Looking Ahead to Samvat 2080

So, the above factors have left investors and traders more bullish on the Indian markets for Samvat 2080.

As per our market outlook, post-decent 11.1% earnings growth in FY23, the net profits of the Nifty-50 index are expected to grow by 15.5% (EPS of 960) in FY24E and by 12.2% (EPS of 1079) in FY25E.

At 19,000, Nifty trades at 19.8x FY24E and at 17.6x FY25E. The valuations of the Nifty-50 index are more reasonable at 17.6x FY25E EPS in the context of moderate earnings growth and muted performance over the past two years.

However, do note that this is just a part of how the markets perform.

As Newton’s law suggests, “What goes up must come down.”

It is not that the markets will only continue to go up. There can be hiccups in the rally and the market could witness a correction if it reaches at a high valuation level or faces harsh macroeconomic conditions.

As a prudent investor or trader, you should enter the markets with the above points in mind.

So, following a tested strategy, considering valuations and macroeconomic dynamics, and investing/trading as per one’s risk tolerance level seems to be the apt way to go about this festive season.

Here are some top picks for this diwali season: Top Muhurat Picks to Invest in November 2023

Until then,

We Wish You a Happy and Prosperous Diwali!

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Sources: Kotak Securities, BSE, Economic Times, RBI Survey, BMI, Retailers Association of India

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.