Will retail stocks storm through the wave of inflation?

Consumers are returning to malls and standalone shops, after two years of shutdown across offline retail stores due to Covid-19. This comes even as pinching inflation makes goods dearer.

Though the pandemic drove a new trend of digital-centric customer, a recent report by BCG-RAI indicated that India’s consumption surpassed pre-pandemic growth levels of 17 per cent.

Malls, too, have begun to see increased footfalls in lower-tier towns as mobility improves.

Now, with retailers ramping up their expansion plans in FY23, analysts expect the same-store-sales-growth figures to improve in the first half of the ongoing fiscal.

Speaking to Business Standard, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, says sharp rebound in India’s GDP augurs well for retail. As consumption is seeing an uptick in metros and urban areas, retail stocks are good bet for the long-term. Avenue Supermarts a favourable buy, he says.

To fight higher inflation and increase in freight and power costs, Indian retail players have undertaken several rounds of price hikes over the past couple of months.

Jubilant Food, Westlife Development, V-Mart Retail, Barbeque Nation and Devyani International, for instance, hiked prices in the range of 6 per cent to 11 per cent in April 2022.

Hence, coupled with softer commodity prices, analysts expect consumer spending to rebound in the near-term.

Nishit Master, Portfolio Manager, Axis Securities, says shift of consumer preference a positive for retail, and do not expect spending to dilute any time soon. ABFRL, Trent, V-Mart Retail stocks are attractive bets, he says.

On the bourses, retail stocks have performed mixed over the last six months.

While stocks like V-Mart Retail, Barbeque Nation, and Jubilant Foodworks shed up to 33 per cent; Shoppers Stop, Trent and Metro Brands gained up to 56 per cent.

In comparison, both Nifty50 and the S&P BSE Sensex tanked over 10 per cent during the period.

Meanwhile, this week, India’s macro data will steer markets as investors track wholesale and retail inflation data for June.

Besides, HCL Tech, Mindtree, L&T Infotech and HDFC Bank will be among the key companies slated to report their Q1FY23 numbers this week.

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