The Economic Impact of Diwali

Diwali is celebrated across India, from Kashmir to Kanyakumari and the world over. It is one the most important festivals celebrated across India. Urban and rural areas alike light up from a week or 2 before the festivities begin, not to mention the festival of Dussehra that precedes it. Diwali - the festival of lights, like all big festivals of the cultures across the world, makes sure that the pockets of people are made considerably lighter.?

In other words, consumption tends to spike significantly; even an inflation ridden recession on the global front cannot dampen the festive spirit. Sales, discounts and across the board increase in footfalls in shops and digital footfall for ecommerce websites alike means demand increases. More festive demand means more to cheer for the businesses.?

Diwali also marks the Hindu New Year for a big part of India’s business community. Shops, offices and homes alike are decorated and the Goddess Lakshmi is worshiped. It is believed that Goddess Lakshmi visits the site of the puja, and brings wealth and prosperity along with her. Diwali is considered an auspicious time to start new projects and acquire greenfield assets.?

The Diwali festive sales crossed Rs 1.25 trillion mark, a record sale last year. These sales are spread across the organized and unorganized sectors. Shops and online stores have high footfall during Diwali and people which drive up the sales. The industries also have their order books full and that keeps the logistics, whole-sellers and entire distribution system busy and their cash registers clinging. In Diwali 2021, stores on Amazon clocked a 2x spike and sold over 10 products every minute! The?sectors which benefit during Diwali include textiles, automobiles, consumer durables, electronic goods, jewellery, real estate, tourism, and food and beverages.

While the stock markets have been choppy over the last few quarters, there is no sense of gloom and doom, or palpable fears of recession in India. The Indian market is poised well and if consumer demand is a barometer, then the next few years appear to lead to a boom in the industry. Because a bulk of the sectors have had good sales in Diwali, the stock markets are also likely to perform well. The “Muhurat Trading” wherein the markets are kept open for trade for an hour during the Lakshmi Puja of Diwali day is supposed to be auspicious.?

Considering these factors it is prudent to assume the markets will move up during Diwali. But let’s first take a look at the current market situation. Global economic crisis has started unfolding and there is little room for doubt about the coming recession at least in the Western economies, which are crippled by high inflation. This inflation is driven up by the excess liquidity from the pandemic and also partly due to high energy costs which are an outcome of the sanctions on Russia. Therefore the overall world economy is looking at headwinds and a potential slowdown. India has been a bright spot on the global scene, but cannot remain insulated for long. In the short term though, Indian markets are still looking positive due to the in control inflation and good growth figures. The domestic economy is propelling the demand for the time being.?

The domestic Indian market is currently defying global trends and NIFTY is still at 17,200 levels (2nd week of October). Inflation will catch up eventually and since the west is likely to be in recession, the demand outlook for most of India’s exports is also expected to go down. This could put a brake on consumer spending, but is unlikely in October and during this Diwali.?

However in the medium term, as demand cools in the face of rising inflation, the job markets may lose sheen as companies tighten their belts and cut costs, to combat a reduction in?earnings. The markets at best are expected to move sideways or correct further in the coming five to six months. For the long term investor, it is prudent to invest in fundamentally strong businesses that have the capability to weather these downturns.?

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