Consumer Durables shares may weaken amid high inflation

Shares of consumer durables are likely to weaken further as rising retail food prices and high inflation is impacting the spending power of consumers thereby resulting in lower demand.

Last week, the BSE Consumer Durables Index was the worst performer among the sectoral indices down nearly 5% and the index has been constantly touching 52-week lows over the past few sessions.

Foreign Institutional Investors exhibited a mixed trend as comparative data of the previous two quarters ended March 31, 2013 and June 30, 2013 showed that they pared holdings in 50% of the stocks in the Consumer Durables Index and marginally increased in the others.

FIIs have reduced their holdings in VIP Industries, Bajaj Electricals, PC Jeweller, Blue Star and Rajesh Exports. However, they remained bullish on Titan Industries, Gitanjali Gems and TTK Prestige in the June quarter. Domestic Instiutions also witnessed lacklustre activity in the previous two quarters while remaining bullish on Bajaj Electricals, Gitanjali Gems and TTK Prestige.

"The purchasing power of consumers has been coming down on account of high inflation resulting in lower demand for goods. Further, imports of goods are higher than exports," said Alex Mathew, Head of Research at Geojit BNP Paribas Financial Services adding that the weakening rupee would further fuel inflation.

The average consumer price inflation since January 2013 has remained in double digits with inflation in January and February nearly hitting 11%.

In the retail segment, Pantaloon Retail released disappointing first quarter earnings as the sluggish economy and lack of consumer confidence is hurting retail sales. The company has been registering lower same-store sales growth during this calendar year.

It may be recalled that Titan Industries had reported healthy first quarter earnings led by its jewellery business amid low gold price.

With gold prices shooting up to Rs 30,000 per 10 gms once again and the recent RBI restrictions on gold is likely could put pressure on Titan Industries' jewellery business going forward, said an analyst at a local brokerage.