Kotak doubts consumption theme for investment

Investment, job creation are imperative for India's favorable demographics to translate into producing assets

 

Domestic brokerage Kotak Securites in its strategy report released today has questioned stock market's continued faith in India's consumption story in the light of weak investment and slow economic recovery.

"In our view, investment and job creation are imperative for India’s favorable demographics to translate into producing assets that will result in a virtuous cycle of economic growth," said Sanjeev Prasad, senior executive director and co-head at Kotak Institutional Equities in a research report.

"Valuations of consumption stocks and derivatives are stretched, reflecting a lack of alternatives; a gradual de-rating may offset moderate earnings growth," he said.

As per the report valuations of consumer stocks look quite stretched in the context of weak fundamentals (modest volume growth) and are supported by top-down favorable view of consumption theme globally. It also indicates lack of alternatives in the Indian market and non-fundamental factors (stake purchases by parent companies at fancy valuations).