Foreign Investors Return to Consumer Durables After Four-Month Sell-Off
Foreign institutional investors have finally broken their four-month selling streak. They turned net buyers of Indian consumer durable stocks in December. These investors purchased shares worth $438 million. This marks a significant shift in market sentiment.
Earnings Growth Drives Bullish Outlook
The main reason for this renewed interest is clear. Analysts expect a strong increase in earnings during the second half of fiscal year 2026. Many companies in the sector could see their profit after tax rise by 20 to 30 percent.
Vipul Bhowar from Waterfield Advisors explained the trend. He said strong festive-season sales and lower raw material costs are fueling this optimism. While stock valuations may not have much room to climb, the actual earnings growth could surprise everyone.
This buying spree comes after a period of poor performance. The BSE Consumer Durables index fell about one percent over the past year. Meanwhile, the Nifty 50 rose by 12 percent.
Sector Performance Shows Sharp Divergence
Not all stocks moved in the same direction. Some companies saw impressive gains over the past year.
- Asian Paints gained 25 percent.
- Titan Company rose 11 percent.
- Berger Paints India increased 25 percent.
Other major players faced significant declines.
- Blue Star fell 32 percent.
- Havells India dropped 9 percent.
- Voltas declined 32 percent.
- Dixon Technologies India decreased 9 percent.
- Amber Enterprises India lost 32 percent.
- PG Electroplast fell 9 percent.
Valuation Correction Attracts Tactical Buying
Manish Valecha of Anand Rathi Institutional Equities pointed to a key factor. He said the sector saw a sharp derating in valuations over the past six to seven months. Weak summer demand and subdued festive sales played a role. Uncertainty around government approvals for joint ventures, especially those with Chinese partners, also hurt sentiment.
This compression of multiples removed the valuation froth. Valecha believes the current FII buying is more tactical than structural. Investors are positioning for a stronger first half of calendar year 2026 compared to 2025.
He expects higher investor interest in specific segments.
- Air conditioners
- Select electronics
These areas offer better growth prospects and stronger seasonal benefits.
Budget Optimism May Be Limited
Valecha cautioned against expecting too much from the Union Budget. Tax cuts have already been announced. The Reserve Bank of India has been cutting rates over the past year. Any incremental support would likely come from policy measures like higher customs duties on imported laptops and electronics. This could boost domestic manufacturing.
From a valuation perspective, the upside looks better now than a year ago. However, returns will probably be stock-specific rather than broad-based. Most consumer durable stocks trade below their long-term averages.
Here are some examples.
- Amber Enterprises India trades at a P/E of 84.84, below its five-year average of 94.72.
- Voltas trades at 57.68, much lower than its average of 109.53.
- Havells trades at 61.73, under its long-term average of 66.51.
Some stocks still command a premium.
- Asian Paints trades at 75.79 times earnings, above its average of 70.14.
- PG Electroplast trades at 55.50, higher than its average of 52.36.
Key Risks Remain for the Investment Thesis
Market participants highlight several risks that could derail the recovery.
- Another weak summer could delay demand recovery.
- Rising input costs, especially for copper, may hurt margins.
- Ongoing delays in government approvals for joint ventures could affect growth in electronics.
Bhowar added two more concerns. If the February 2026 budget fails to deliver personal income tax relief, the "consumption boom" narrative might fade. Also, if the US Federal Reserve postpones rate cuts until mid-2026, the dollar could stay strong. This might trigger a new wave of FII selling in emerging markets.
Reading the Q3 FY26 Picture
A Nuvama Institutional Equities report from 8 January provides insights. Electronic manufacturing services companies may deliver moderate growth.
- Revenue growth around 11 percent.
- Ebitda growth near 17 percent.
- PAT growth about 11 percent.
Appliance companies across all categories will likely show weak performance due to subdued consumption. The report named specific companies.
Kaynes and Syrma SGS should post solid sales growth. Polycab and KEI may follow. Dixon, Havells, Crompton, and Whirlpool will probably show weak numbers.
Kotak Institutional Equities expects faster growth in wires and cables. Higher volumes and rising average selling prices should drive this. Room air conditioners may see a smaller decline due to advance channel stocking.
In electronic consumer durables, strong growth in water heaters could offset weakness in fans. Water and air purifiers are expected to perform well.
