Slowdown has been the reason for all sorts of problem in and around India. Only sector which has been reporting a growth worth calling a growth is the IT industry. When everything fails a little cheer is provided to everyone by the fact that the Diwali festival is not far away.
A lot is riding on this Diwali, a lot more than it ever did. A lot of freebies are going to be offered as each and every manufacturer is now going to go out on a limb to lure the customer.
Not only have we seen a plethora of launches in the past one week, but a lot more are to come. And by the Diwali eve, the market will have at least a dozen of new products in each segment which will stay till the New Year.
This Diwali will be a litmus test and will determine the situation of the Indian stock market till the New Years. Safe bet to invest this Samvat trading session (the name given to the Diwali trading session) will be on the manufacturing industry esp., the automobile segment. Automobile, electronics, and gold are things that usually rally during the festive season. This is because…
a) Automobile manufacturers and dealers provide with considerable discount during this season. The discount will either be direct on the price or will be offered in the form of add-ons for free. My guess is if anyone wants to buy a sedan this season, Chevrolet Cruze , Optra (this one still sells among the corporate), Honda City, Honda Civic will be heavily discounted as all of the afore mentioned models are way too old. Same goes for electronics, older models will be heavily discounted and newer launch will be heavily marketed.
b) SENSEX – it will be safe to invest in the IT industry but the profit margin won’t be that great considering the fact that already all the results are out and everyone expects them to rally. Though I have a major feeling that after a few months by around Jan we will see all the major IT firms reeling under US labour laws. If US takes further steps towards job security for the locals then that will be another blow for the IT. So preferably go for pharmaceuticals, automobiles and banking industry for considerable long term gain.
c) Gold / Silver / Bronze – Usually by the festival season the prices for Gold hits the ceiling and it becomes pretty much unaffordable in higher quantities. So people will shift towards cheaper stones preferably silver. Silver is much cheaper and since after Diwali the next (somewhat) major shopping festival comes only in January (sankranti), the demand for silver will hit gold.
If all goes fine, if all the incentives/discounts are successful in luring the consumers. If the consumers open their wallets and Sensex sees a positive gain then the market sentiment will remain positive for the months to come. Else it is really hard to predict how the market sentiment will sway. For the sake of the government and for reinforcing the faith in Indian economy it will be better that at least the Samwat trading sees some major gains.
[This post has been written by Sudarshan Rangarajan]