Buying Footwear Stocks? Think Again

Last Diwali, I came across a meme on twitter which read...

'Every Diwali... Light Diya, Eat Sweets, Spend Time with Family and Watch Big Bull RJ, where he will predict the mother of all Bull Market is here'.

Unfortunately, it's sad not to see the legend this Diwali. The humour, boldness, and conviction with which he spoke made watching all of his interviews worthwhile.

While it's symbolic to hear stock market veterans talk about their views on Diwali, I fail to understand the obsession with Diwali picks which TV channels and brokerages have.

After all, you should buy stocks when they offer value and sell them when they get expensive or if growth is likely to faulter. The logic of buying stocks during Diwali is bizarre in my view.

Here's what I found about Diwali picks when I dug into the archives of 2017, in a normal pre-covid world.

In the table below, I collated data from three prominent experts who are regularly on CNBC TV18.

The results are astonishing.

Top picks of 3 TV Experts from 2017-2019

Most of the stocks have not only underperformed, but crashed.

While I understand recommending smallcaps is fraught with risks, but this level of wealth erosion is unacceptable. It's like shooting in the dark.

Also, a lot of the so-called market experts come on TV during Diwali and talk about stocks like HDFC, Bajaj Finance, TCS, and Infosys.

Well, these are safe stocks, what is so extraordinary about recommending them?

The only downside in large-cap stocks is that your holding period will increase if the stock or sector underperforms.

Say if you would have bought a Sun Pharma during Diwali in 2017. The price was Rs 550.

The stock underperformed for 2-3 years, but the value destruction was to the extent of 15-18%. The only downside was a subpar return along with an increase in the holding period.

Another point in contention is that on analysis of Diwali stock recommendations, a lot of the so-called market experts will talk about stocks which are in favour. If you followed the brokerage picks, in 2021, there was a consensus buy on diagnostic stocks.

Stocks like Dr Lal Path Labs and Metropolis were trading at 80-90 PE ratio at that time.

They justified buying these stocks on Diwali on the assumption that growth would be perpetual and margins would never contract. It looks like they forgot to factor in something known as 'competition'.

Anyway, to cut a long story short, most of the time, people buy momentum stocks and often get stuck. It was metals and diagnostic stocks in 2021. Now there is another momentum play in 2022.

My intention of writing about Diwali picks and share my view about why it's a scam, is to caution investors to not play momentum stocks or take TV experts seriously.

The momentum play in 2022 is the footwear sector.

Yes, that is the consensus buy among a majority of people on Dalal Street.

A common way to sell stories is by talking about market penetration and per capita consumption of the product.

Here is some food for thought...

The world's largest shoe retailer is Nike. It trades at a P/E of 24 times. Indian footwear stocks, in the name of low penetration and high growth, trade at a P/E of 100 times.

A lot of people will talk about high future growth and depressed earnings. Well, the table below will quell your thoughts about moderation in valuation.

As an example, let's take Campus Activewear. It's EPS was Rs 4.1 in FY22. You also must realise that a lot of revenue in FY22 was pent up demand as schools opened after a gap of a year.

Even if in FY25, EPS triples, we are talking about Rs 12 earnings per share. Now on a Rs 600 stock price and earnings tripling, which in my view is far-fetched and not likely to happen, the stock still trades at 50-55 times 2 years forward P/E.

You can't buy a sector at these valuations in which 85% of the market share belongs to unorganised players.

Yes, these top 4-5 players only control 15% of the total footwear market. They have a limited moat, with competition being extremely high.

While the long-term story is strong on premiumisation and penetration, but at these valuations, you can't buy into them.

In fact, any rally in these stocks should be used as an opportunity to exit. In my view, the story looks great but only at lower valuations, after a 30% correction at least.

Warm regards,


Aditya Vora
Research Analyst, Hidden Treasure