The share price performance for apparel retail companies over the past year has lagged behind benchmarks, primarily due to sluggish revenue growth caused by steep inflation in raw material prices. However, based on our channel checks, the sector is poised for a comeback in the second half of the year, driven by double-digit revenue growth supported by aggressive promotions following a correction in raw material prices over the last six to nine months.
The response to the recently concluded end-of-season sale was muted when it began in early June but improved significantly just before the Navratri season, as brands became more aggressive with promotions. We believe the sector is set to report double-digit EBITDA growth in the second half, driven by a resurgence in foot traffic, the upcoming wedding season in H2, and a high probability of margin expansion due to favorable operating leverage. As a result, we have increased our portfolio weightings in apparel retail companies since September.
