Diwali is just a couple of days ahead of us. So, what have you all thought of buying this year? New car, new bike, new phone, new ornaments, new clothes OR a phenomenally larger investment by directly buying an apartment or bungalow. Now we know you’re wondering why a finance blog is suddenly discussing festivals and what do festivals have to do with stocks?
Well, Stock exchanges hold a special symbolic trading session on the occasion of Diwali, which is called ‘Muhurat Trading’. The one-hour session is considered auspicious to mark the beginning of the traditional Hindu accounting year, called Samvat. Markets generally stay positive this hour. Now that we are back to our favorite topic i.e Stock Markets.
Let’s learn something new about the markets today. Ready for a knowledge upgrade?
Today we will discuss Festive stocks.
You may be wondering what festive stocks are? But before knowing about festive stocks, you must know about seasonal stocks and what seasonal stocks are. So, let’s get started.
Seasonal stocks are companies that sell better during a specific season. In India, there are 3 seasons, so, we have 3 types of seasonal stocks.
As summers in India are too hot, demand for products like AC, fans, coolers, refrigerators increase. Catering to these needs comes stocks of companies like Havells, Voltas, Bluestar. In winters, people rush to buy sweaters, woolen socks, heaters and winter creams, etc. Think, which stocks benefit from monsoons?? Well, ours is an agricultural country, so it's obvious that monsoons are dominated by fertilizer and pesticides.
But apart from these 3 seasons, we have the 4th season too. Guess which one??? It's the Festive season. As soon as Sept ends, festivals start to line up. We have Ganesh Chaturthi, Dussehra, Diwali, Ramzan, Christmas, and more. We enjoy all these festivals but have you noticed that we spend extravagantly during these festivals? Did you try to analyze the business wala part of festivals?
Let us make this easy for you. With festivals coming in we buy new clothes, new automobiles, new homes, new jewelry. In short, we buy anything new. Now, guess what industries these all affect? We will find out soon. Stay tuned! But before that, we will take a look at the difference between Seasonal & Cyclical stocks.
Difference between Cyclical and Seasonal Stocks
Cyclical stocks tell us the condition of the economy. If the economy is booming, people prefer to consume more luxury goods. People tend to surge a little more. Demand for cars increases. Whereas in an economic down cycle, people tend to fulfill their basic needs. They would buy more groceries and daily utilities. Let's take the example of COVID-19, during the lockdown people needed groceries the most whereas after the lockdown was eased people started buying cars and different utility items rather than just essentials. The point we want to make is that a cyclical stock reflects the state of the economy. Cyclical companies would be automobile & ancillary, realty, construction, and more.
On the other hand, seasonal stocks do not reflect anything about economic conditions, in fact, seasonal stocks depend on the season. Like we said earlier, seasonal ones have high sales in specific seasons.
Moving forward let’s talk about our favorite season that is Festive Season and our top picks for you.
Top 5 Festive stocks to Invest
The first stock we will talk about is Hero MotoCorp. As Diwali approaches, 2 Wheelers, as well as 4 Wheelers, get back in demand. We as Indians still prefer to buy mid-segment bikes than cars. So, Hero Motocorp proudly features in our list of festive stocks. Before moving forward take a look at the company essentials for the stock.
*Company Essentials are subjected to change. For updated data Visit Ticker
Highlights of Hero MotoCorp
If you take a look at the financial highlights of Hero, the company seems to be in a pretty good position. Being an auto company, Hero is virtually debt-free. Isn’t that unique?
But HELLOOO, we aren’t just referring to Hero but all automobile companies should be on your watchlist. Diwali sales figure is what most analysts and economists look for to know about an economy.
Did you know: Hero is the world’s largest manufacturer of 2 Wheelers, in terms of unit volumes sold by a single company in a calendar year, for 19 years in a row.
As Indians, we wait for the right time to buy good things, and what can be as good as buying your own home? Buying a home is a very crucial decision as it's a long-term investment and people generally prefer trusted builders. That’s what makes Godrej properties so attractive! Its trustworthy promoter group, timely delivery of projects, and quality construction.
We have specifically included this stock in our stock list because people tend to make capital investments such as buying a house in festive seasons.
Highlights of Godrej Properties
Godrej properties have put itself at a competitive edge by managing to maintain a lower debt compared to other players in the building market. They have also been consistently growing their share price at a CAGR of 45.1% in the last 5 years.
Did you Know Real estate developers Godrej Properties sold Rs 575 crore worth of apartments in a single day on Sept 22 this year.
Those who don’t buy new homes, do renovate the existing ones with interior changes, and buying new home decor products and home decor starts with paints. Which company other than Asian Paint has the best supply chain in the current market scenario? That is why we like Asian paints. Whether it be a tier-1 city or any remote village, Asian paints are present everywhere. Take a look at its essential numbers.
*Company essentials are subjected to change. For updated data Visit Ticker
Highlights of Asian Paints
These tint-titans share their humble beginnings with a pre-independence India, being one of the only two domestically established paint industries, it came into existence in the year 1942. They have also experienced a price rise in their shares at a CAGR of 24.7% and a profit growth of 13.47% in the last 5 years.
With so many automobiles and properties being sold it is evident that loans are going to increase. Loans come in handy when buying things. So, our prediction is that with the markets taking a speedy recovery, credit growth in the economy will increase. When it comes to loans, Bajaj Finance with significant investments in R&D has made its presence visible everywhere. These investments in technology have helped Bajaj to grow faster than its peers.
Highlights of Bajaj Finance
Bajaj Finance has seen consistent growth in its share prices at a CAGR of 48.4% as well as had a profit growth of 25.34% in the last 5 years.
Finally, we have the jewelry segment. Talking about Indian festivals and missing jewelry in the conversation is like talking about the Tata group without ‘Ratan’ Tata. How can we make the mistake of missing this gem ‘Titan’? Tanishq, a Titan brand, holds a dominant position in Indian jewelry markets when it comes to the jewelry segment. Titan is in fact the largest jewelry retailer in India.
Highlights of Titan
The luxury brand has honored its name and reached truly “Titan-like” proportions with its share prices rising at a CAGR of 44.9% in the last 5 years. The company also appears to be able to manage its cash well as it has a Cash flow to Profit ratio of 1.25(Psst!! Anything greater than 1 is good FYI).
All the companies that we have selected are market leaders in their segment. Whether it be Titan or Asian paints or Bajaj Finance everyone has their forte in the business domain they operate in.
So these are the hard-hitting companies and the stocks for the season but don’t just tunnel down on these few picks. The festive season is a fickle mistress and no single stock can stay on top for too long with their competitors at the gates trying to get a piece of their own “Inaami”. So which companies will win your favor in this celebratory period and which high soaring rockets will your arsenals flaunt? Let us know in the comments below. If any of these nuggets of wisdom intrigued you, do feel free to share some knowledge with festive cheer.
Happy Diwali to you and yours from the Finology family.
*Disclaimer: The stocks discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.