Retail Sector Is High On Hopes Of More FDI.

Better-than-expected sales helped fuel the recent rally in the retail sector despite excise duty ambiguity in the fourth quarter of FY11. Increased optimism about the government allowing more than 51% foreign direct investment ( FDI )) in multibrand retailing also provided a boost.

Most of the sectoral stocks are trading above their one-year average prices and close to 52-week highs. In the March quarter, higher demand helped all the retail companies post a very strong growth in the top line. However, operating margins declined as the companies could not fully pass on higher input costs to customers. This trend was mainly visible in the apparel retailing companies.

But operating margins of companies such as Bata India and Jubilant Foodworks improved further, thanks to strong brand power and operational revamp. In the medium to long term, the sector will continue to see growth in demand due to the consumer nature of the industry. However, given the rich valuations of these companies, investors should wait for a better entry point.

Most of these stocks including Titan Industries , Bata India, Shoppers Stop , Kewal Kiran , Page Industries and Jubilant Foodworks are trading at a much higher price than the yearly average and very close to 52-week highs. However, Pantaloon Retail and Provogue are trading at prices lower than their 52-week highs. This is mainly due to the weak performance of these companies in the past few quarters.

Source : economictimes.indiatimes.com