New Delhi [India], July 12 : The consumer discretionary sector is likely to show mixed signals and is expected to grow at a rate of 18 per cent on a year-on-year basis due to a combination of both positive and negative factors, as per a report by HDFC Securities.
Consumer discretionary refers to goods and services that consumers consider non-essential but desirable if their income allows. In other words, this means that the products and services within this sector are not considered vital for survival or daily living, but rather things that consumers desire when they have enough disposable income to spend.
According to the report, the discretionary universe is expected to face a tailwind from new age businesses, which are expected to grow at a 49 per cent YoY rate, while a slow growth rate from paint companies can offer headwinds to this universe.
Additionally, the report shows the jewellery, F&G, apparel, and footwear sectors to pace at approximately 20 per cent, 16 per cent, 16 per cent, and 7 per cent, respectively.
Same-store sales growth (SSSG) across different categories is expected to show significant divergence in their Q1 performance. Particularly, the Jewellery sector is expected to maintain healthy growth, while Offline F&G is likely to see stable growth, along with in-apparel, where value retail continues its steady growth.
On the flip side, SSSG of the Footwear segment, Paint companies and New age businesses are likely to witness demand pressure in Q1.
"Margins for our discretionary universe are expected to contract by ~80bps to 9.6 per cent, primarily due to weak SSSG and elevated quick commerce (QC) burn. Ex-new age businesses, we anticipate largely flat margins YoY," HDFC Securities said in a research note.
Furthermore, the discretionary sector has witnessed a round of earnings downgrades, while on the other hand, valuations for discretionary brands continue to remain punchy.
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