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While Diwali 2024 has been challenging for cyclical stocks, it is essential to view this within t...

Posted: 01 Nov 2024

While Diwali 2024 has been challenging for cyclical stocks, it is essential to view this within the broader context of market cycles. There has been a noticeable change in the performance of cyclical stocks and sectors this Diwali season, typically a time of confidence and rising market activity. In contrast with the strong returns in the previous three years, the cyclical sectors and stocks that have historically done well around this time of the year have significantly underperformed in 2024. Economic uncertainty: the global economic landscape has been fraught with uncertainty and concerns over geopolitical tensions have dampened investor sentiment. These macroeconomic factors have had a pronounced impact on cyclical stocks, which are more sensitive to economic fluctuations. Supply chain disruptions: ongoing supply chain issues have continued to plague industries reliant on global trade. The automotive sector, for instance, has faced significant challenges due to semiconductor shortages and logistical bottlenecks. These disruptions have hindered production and sales, leading to weaker stock performance. The China factor: the fundamental trigger for the FII outflows is the elevated valuations in India and the relatively cheap and attractive valuations in markets like China. The sell-off is on account of FPIs shifting investments towards Chinese stocks, which currently offer attractive valuations and growth potential due to government stimuli. This has sparked concerns about the impact on India's stock markets. More When comparing the performance of cyclical stocks this year to the previous three years, the contrast is stark. In 2021, 2022, and 2023, these stocks saw substantial gains, buoyed by post-Covid economic recovery and a surge in consumer spending. The festive season acted as a catalyst, driving up stock prices and investor confidence.In contrast, 2024 has been characterised by volatility and subdued growth. The one-month period prior to Diwali has been taken into account for the analysis. The BSE Auto Index, for instance, has declined approximately 13.66 percent compared to just 1.66 percent in the same period last year. Similarly, the BSE Consumer Durables Index has struggled to maintain its positive momentum, reflecting broader market challenges. The NSE realty index dipped 9.25 percent in the Diwali period this year as against a gain of 18.34 percent last year. In terms of stocks, Bajaj Auto shares have fallen over 14 percent this year after gaining nearly 15 percent last year around Diwali. Similarly, the shares were up over 10 percent in 2019, followed by a fall of around 10 percent during the Covid year. It gained a little over 4 percent in 2022. A similar trend was visible in Eicher Motors, which gained ground in each of the last three years around Diwali, but has dipped nearly 7 percent this year. Kalyan Jewellers has also seen a similar pattern, having fallen around 5 percent this year. It was up 6.43 percent in 2022, followed by a gain of nearly 13 percent in 2023. Tata Consumer, which is down more than 15 percent this year around Diwali, had gained 4.46 percent last year during the same period. Realty majors like Marcotech Developers and Godrej Properties have also seen a similar trend this time. Looking ahead Despite the current underperformance, the outlook is cautiously optimistic. Analysts suggest that once the macroeconomic headwinds subside and supply chain issues are resolved, cyclical stocks could regain their footing. Additionally, any positive developments in consumer sentiment could provide the necessary impetus for a rebound. Thus, while Diwali 2024 has been challenging for cyclical stocks, it is essential to view this within the broader context of market cycles. Analysts say that investors should remain vigilant and consider long-term trends when making investment decisions.