Industries that Benefit from Diwali

Breaking down the changes in the Indian economy during the festive season

Is Diwali also lighting up the businesses in India, that have been asleep for a while now?

The festival of lights, Diwali is arguably the most important festival of India. The festival is a celebration of the widely believed mythological story Ramayan, and the 4-5 day festival highlights the return of the protagonist Ram, to his home. The festival is of huge importance to people following the Hindu religion, signifying a time of new beginnings, luck and wealth, a time when social gatherings are at its best.

The country's economy is moving more than usual, and the demand and supply dynamics witness some changes during Diwali, especially as it has come at a time during the boom phase of the economy this year.

Demand characteristics

Massive sales

Over 90% of the population of India practices Hinduism and so large is the effect of Diwali on consumer behaviour and spending. People meet with their family, party with friends and social gatherings are at an all year high. Given the modernization and adoption of western culture, Diwali is not only a time for customary pujas, but to reunite with family and friends at home. Considering this to be an auspicious time, most people have some kind of major consumption lined up, especially discretionary goods and gifting.

Best time to launch new products

People frequenting stores / malls and browsing online shopping sites is an expected sight during the festive season. Companies, especially those that are well established in their respective sectors, view this is an ideal time to launch new products or versions, given the increased eyeballs. 

Dhanteras

A point worth mentioning is the day of Dhanteras, one of the first days during the Deepavali festival. Worshipping Lakshmi, the goddess of wealth, this day is considered auspicious to buy new goods, especially gold. This year the gold jewellers had the highest sales in 3 years, due to lockdown openings and pent up demand. People usually flock to gold when equity markets grow uncertain. Gold is a much preferred way to hedge against inflation, a great portfolio diversification tool.

Supply characteristics

Economies of scale

This yearly uptick in demand is quite popular with sellers, especially consumer discretionary merchants having the best sales this quarter. Such kind of anticipated demand leads to producers stocking up inventory, manufacturing goods as soon as possible to make the most returns, and benefit from economies of scale. 

Ecommerce uptick

Markets are always created in a place where people are. In ancient times those places were temples, today it's the internet. The internet is flooded with advertisements launching new products on online shopping portals. Products are offered at huge discounts in the name of 'Diwali sale'. Saving store space, bulk delivery reducing cost are some of the perks of selling online.

Source: Statista

Sectors most influenced by the festival

The major industries benefited are hence follows.

Travel

Since this is a ripe time for social gatherings, people are bound to travel, either to their homes or on short vacations. More train and flight tickets are being booked since lockdowns are also opening up, and domestic travel is expected to drive demand. Watch out for the earnings release of top travel companies this quarter which may reflect the business during the festive season. This may lead to good upside potential of certain popular stocks.

The tourism and hospitality sector is also set to witness some new demand from domestic as well as foreign tourists.  You can read more about the industry here.

Kotak Securities has a BUY rating on Indigo (CMP: 2170.95) with 1st and 2nd targets of 2300 and 2500 and a stop loss of 1700.

Apparel 

New clothes are a must in every traditional Hindu household during the season. Apparel and textile companies are sure to witness an uptick this time, though the effect is not as large as on other industries. 

SMC Global has a target of Rs 193, a global leader in home textiles.

Consumer discretionary

Goods like automobiles, electronic items like washing machines, TV sets, etc come under consumer discretionary goods. These are so called 'luxury goods' and purchase of these goods can be delayed. In times of economic boom like this one, or festivities, these goods do well, belonging to cyclical industries. 

Nirmal Bang has a BUY rating on Tata Motors (CMP: 489.70) with a target of 630 and a stop loss of 420.

Banking

Big and occasional purchases like consumer discretionary and gold often need the support of credit, ie. banks and other finance corporations. These companies often offer attractive interest rates, especially for the increasing demographic of the young population at such a time.

Below is a list of stocks recommended by different analysts:

In a nutshell, 

A festive season promises more demand for goods & services, and that coming in a time of economic boom magnifies its effects, both for companies and in turn, for investors.