Why are Diwali stocks going through a bad phase? Recovery may be seen soon – why diwali stocks are underperforming this year the crisis may soon be over
This Diwali season, there has been a lot of change in the performance of cyclical stocks and sectors. These stocks and sectors have given better returns in the last three years. However, the performance of these stocks and sectors has been weak in 2024, whereas generally their performance is good during Diwali. Leaving aside the Covid era of 2020, the performance of cyclical stocks and sectors in the last two-three years has been much better during the festive season. Sectors like automotive, construction etc. are included in this scope.
2024: a year of challenges
This time i.e. the environment of 2024 is completely different. Foreign institutional investors (FIIs) were net sellers in October and sold shares worth $11 billion during this period. However, domestic institutional investors have bought heavily. Experts say that there are many reasons for the selling of FIIs, such as weak results of the September quarter, high valuation of the market, great opportunities in other markets and the US presidential elections.
However, there are many other factors that have contributed to the underperformance of cyclical stocks during this Diwali season.
Economic Uncertainty: There is uncertainty in the global economic scenario and investors’ enthusiasm has cooled down due to concerns over geopolitical tensions. These macroeconomic factors have impacted cyclical stocks, which are more sensitive to economic fluctuations.
Supply Chain Disruptions: Current supply chain issues continue to hurt industries dependent on global trade. For example, the automotive industry is facing a lot of challenges due to semiconductor shortage and logistics constraints. Due to these constraints, production and sales have been affected and the performance of stocks has weakened.
China Factor: The main reason for selling by FIIs is high valuations in India and relatively cheap and attractive valuations in the Chinese market. In fact, foreign portfolio investors are withdrawing money from India and investing their money in China’s stock market. Due to the announcement of relief package in China, there is a possibility of growth there. Concerns have increased regarding its impact on India’s stock market. In fact, due to this new trend, almost all those sectors which fall in the cyclical category have been adversely affected.
the way forward
Despite the current challenges regarding performance, the outlook for these stocks looks broadly positive. According to experts, once the macroeconomic crisis eases and the supply chain issues are resolved, cyclical stocks can strengthen their hold again. Moreover, any positive change in consumer sentiment can be a better tool for recovery.