In the recent past, the pain due to feeble consumption sentiment has spread to many discretionary segments, ranging from gold and undergarments to stationery, thereby adding to the scepticism on their growth prospects as well. However, some segments in the discretionary space such as decorative paints and footwear have stood out and are likely to remain outliers, and consequently, are likely to be on investors’ radar. The share price movement of major paint and footwear players, too, highlights investor enthusiasm for these segments.

The stocks of three big paint players (Asian Paints, Berger Paints, and Kansai Nerolac) have gained up to 11 per cent, while that of footwear majors Bata and Relaxo are up 9-12 per cent in the last three months. This was a sharp outperformance to other major discretionary players, such as Titan and Page Industries, which have seen their share prices dwindle by 12-17 per cent during the same period.

Among factors that point to healthy growth potential in these segments include structural changes that have enhanced the ability of these players to take away market share from unorganised players, different and improved business models, focus on product premiumisation and new launches, and under-penetrated demographic segments, say analysts.

In the case of paints, for instance, a slash in goods and services tax (GST) last year from 28 per cent to 18 per cent has led to market share gains, mainly in the low-priced products such as distemper, where unorganised players have a higher presence.

Earlier, unorganised players were seen benefiting from the tax arbitrage. Further, around 80 per cent of decorative paint demand comes from repainting existing houses. Notably, the cycle of repainting houses has come down drastically from about seven-eight years to three-four years now, and is fuelling demand. All this largely mitigates the volume growth risk emanating from the pain the real estate projects are going through.

Gauging the current demand situation in decorative paints, ICICI Securities’ channel check report states a Chennai-based dealer mainly catering to repainting requirements hasn’t been impacted by the slowdown in new constructions.

“The paint segment should do well in the ensuing quarters. Historically, the segment grew 1.5-2x of gross domestic product in terms of volume, which should sustain,” says Vishal Gutka, AVP at Phillip Capital.

According to Edelweiss Securities, volumes of Asian Paints and Berger Paints are likely to grow by around 13 per cent in 2019-20. Companies are also expanding reach to drive volumes and improve penetration.

While Asian Paints is a leader in decorative paints, Berger Paints is the second-largest player and earns 80 per cent share of its revenues from decorative paints.

In the case of footwear, too, GST rates were lowered for products priced above Rs 500 up to Rs 1,000 per pair last year. This segment accounts for a major share in the country’s footwear market (about 50 per cent in the case of Bata), indicating its significance in the overall performance of footwear makers.

Being a leader in the economy footwear category, Relaxo would gain more from lower GST rates. While for Bata, focus on premium products, under-penetrated women portfolio, and distribution expansion in tier 3 and 4 towns are key positives.

According to Amarjeet Maurya, AVP at Angel Broking, both footwear majors would continue posting good growth with improvement in business strategies, in terms of distribution, portfolio focus, product formation, etc.

In the June 2019 quarter, too, healthy volume growth led to double-digit revenue growth on a year-on-year basis and helped these footwear and paint companies post good performance. Besides, these two industries would benefit on the margin front, with focus on premium products and benign input cost (mainly for paint companies).

Asian Paints is analysts’ top pick in the paint sector and Bata in footwear.