By G ChokkalingamNearly 20 consumer durables stocks are listed on domestic stock market.
And almost all of them have fallen anywhere between 5 per cent and as high as 65 per cent from their 52-week highs in 2018.
Most of them are smallcap or midcap stocks and their poor performance was in line with crash in smallcap and midcap (SMC) segments.Since their January 2018 peaks, stocks of small and midcap segments have lost collectively close to Rs 20 lakh crore in market-caps.The consumer durables sector basically hold a solid outlook for long term.
Rapid urbanisation and ever-growing per capita income in economy can ensure this industrys unlimited growth potential.
Rising temperature, pollution levels, evolving consumer lifestyles also favour consumer durables industry.Recent changes in taxation on consumer durables are also throwing up some opportunities to this industry.
In July, many durables such as hair dryers to shavers, mixer grinders, vaccum cleaners, refrigerators, washing machines and small televisions were shifted from 28 per cent to 18 per cent GST tax brackets.Meanwhile, customs duty was doubled for a category of white goods, including air-conditioners, washing machines and refrigerators in September 2018.
This would improve competitive edge for domestic producers.
On December 22, GST rate on TV sets with screen sizes of up to 32 inches was lowered to 18 per cent from 28 per cent earlier.
Now only air conditioners including five-star inverter ACs are left in highest 28 per cent tax slab.Substantial tax reduction for most of consumer durables items would help industry improve growth in revenues as tax benefits are expected to be passed on to end users.However, in short term, industry is likely to face some weakness.
Having lent large sums as consumer durables loans over past couple of years, banks seem to be shying away from them, possibly fearing delinquencies.
Outstanding loans to segment dropped sharply by 82 per cent year-on-year to Rs 3,225 crore on September 28.Movement of BSE Consumer Durables index vs BSE SensexMoreover, both kharif and rabi crop outputs have fallen marginally this year.
A fall in overall agricultural output is likely to compensate benefits expected for farmers from proposed increase in support prices for agricultural crops.
Worldwide also, food crop prices are on a downswing.
Hence, this industry is likely to face weakness in sales in rural markets in short term.The threats to industry are not substantial.
A rise in import duty on some consumer durables items and over 12 per cent depreciation in rupee exchange rate provide some protection to domestic consumer durables manufacturers.
The forthcoming general elections will also augur well for industry as anticipated loan waivers for farmers in many states could improve their appetite to buy consumer durables.
A substantial correction in stock prices provides good opportunity to buy select consumer durables stocks in New Year for long-term wealth creation.Consumer Durables stocks' performance in 2019(G Chokkalingam is Founder Managing Director of Equinomics Research Advisory.
Views are his own)