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Consumer durable stocks have seen a good run on expectations of a pick-up in demand on improvement in overall macros. In a month, Videocon Industries, TTK Prestige, Rajesh Exports, Blue Star, Whirlpool India, VIP Industries and Titan Company have rallied between 18 and 52 per cent.
The S&P BSE consumer durable index has outperformed the market surging 25 per cent compared with 11 per cent rise in Sensex in the period.
On Tuesday, the index rallied 3.5 per cent and outperformed the Sensex and Nifty that ended flat. TTK Prestige (TTK) was the largest gainer in the consumer durable index, closing 14 per cent higher on previous close at Rs 4,122.
In a report, CRISIL was optimistic on TTK. It pegs the revenue compound annual growth rate (CAGR) at 15.5 per cent over FY14-16 driven by improvement in demand and contribution from new products.
"We expect a higher top line to result in operating leverage, which, with reduced dependence on imports, is expected to improve its operating margins."
Policy-driven turnround
The sector, bogged by sluggish market conditions, expects a turnround from policy initiatives by the new government.
Ambareesh Baliga, managing partner (global wealth management), Edelweiss Financial Services, says, "The steps being taken to revive economic growth augur well for this sector. But things will not happen overnight."
Vaibhav Sanghavi, director, equities, Ambit Investment Advisors, says the rally has been on the hope economic growth will recover from 4.5 to 5.5 per cent. "The incremental one per cent would increase the demand multi-fold, which could push up the capacity utilisation levels."
A delayed monsoon and soaring temperatures across the country are added near-term positives. Anirudh Dhoot, president, Consumer Electronics and Appliances Manufacturers Association, says the soaring temperatures and delayed monsoon have led to a rise in the sales of air-conditioners and refrigerators.
Stock strategy
Analysts are telling to wait for a dip in these stocks.
Baliga is against fresh exposure to this sector though one can hold on to Voltas and TTK Prestige. He suggests booking profit in Videocon.
Given the rally, Sanghavi prefers to wait for a revival in the economic growth numbers before taking an investment call.
As regards Blue Star, Milan Desai, an analyst tracking the company at Angel Broking, has a buy rating, with a target of Rs 367. He expects a CAGR of 10 per cent in revenue over FY2014-16E to Rs 3,542 crore.
Tirthankar Patnaik, director (institutional research) at Religare Capital Markets, likes discretionary consumption as a theme given the turnround in macro sentiments. Despite the rally, Voltas, Havells India and Symphony are his top picks.
