Most of the time we make a buy or a sell case, rarely do we look at stock market trends from a consumption point of view. Markets work with a multitude of external factors, consumption is one of these. But if the broad consumption trend is up, the society will not just gobble up cars, burgers and films, it will also gulp down stocks and investment ideas.
But then one may say that such connections are not linear, consumption is also about basic needs. Out of the 10 broad economic sectors, around half are linked with direct societal consumption. The consumer discretionary sector includes stocks that sell products (or offer services) that consumers do not necessarily need (like consumer staples), but that they want. The consumer discretionary includes auto related, entertainment, home appliances, homebuilders and retailers, among others.
Auto, FMCG, BSE Consumer Durables were the top performers since 2009. And this has not been just an isolated case for India. Even globally, the consumer discretionary or retail ETF SPDR is the top performing sector. This means society is not only consuming, but it’s also on a consumption spree.
A society does not consume because it’s feeling insecure and weak. The current trends belie any insecurity. The society is confident, not worried about tomorrow. So, where is the crisis? One may say that society does not understand the peak is near and is herding itself into an imminent disaster, when it will finally learn how to save rather than consume. Masses only get it wrong at reversals, not before that. So, is the current consumption trend telling us about continued momentum and economic development or is it pointing to extreme euphoria?
Before we answer these questions, doomsayers should consider the consumption case and ask themselves, why is society feeling secure? And how can a market reverse without any signs of peaking consumption? Does consumption lead or lag markets? If the social behaviour leads the markets, what is this social behaviour telling us - disaster or prosperity well into 2015?
The bear market has been selective. Sectors of the market outperformed while the rest underperformed. A few global regions underperformed while many regions around the world outperformed.
This inter-market divergence could have led to a cleansing of excesses from weaker sectors or consumption is ready to fall along with everything else. This means either we are ready for a real and broad market rebound or it’s time for the society to wake up and say “let’s start to save”.
Well, we don’t think Generation Y is going to stop buying iPhones soon enough. There is simply too much credit in the system. We are with the rebound case, like we said in early January. For us, any 10 per cent move down across the Indian landscape takes us nearer to the 2009 crisis lows, which seem more of a pessimistic error than a realistic valuation. History is repeating itself, but this time it’s backed by crazy consumption, which might see apples worth not one but a few trillion dollars.
The author is CMT, and Co-Founder, Orpheus Capitals, a global alternative research firm
