Back in the 1950s, American investors used to say, “What’s good for General Motors (GM) is good for America”. GM was by far, the world’s largest car manufacturer. Hence, there was a sound logic backing that statement.

The auto industry has a long value-chain, from mining to manufacturing, to downstream services. Cars contain metals, rubber, leather, plastics, glass and composites. They have thousands of components as varied as forged metal plates, electronic chips and sensors. Car sales create revenue and employment downstream, in financial services, advertising and marketing, and in repair, maintenance and fuelling services.

In the here and now, car sales in India have been weak through the past few months. Indeed, car sales have been so weak that Maruti Suzuki, India’s largest passenger car-maker, is cutting down on production by 25 per cent.

It’s reasonable to assume that the entire industry is suffering from weak demand if Maruti is cutting production. A lack of josh in the auto industry implies less activity along the value chain.  It would not therefore, be a great time to invest in automobile stocks.

Think about the logic, for a moment. It is not a good time to buy auto stocks because people are not buying cars. Now invert the logic: it makes sense to buy auto stocks when people are buying cars.

We can generalise from this. Find out what people are buying and invest in those businesses. This is the essence of finding consumer-specific businesses with growth prospects. Data scientists and market researchers spend vast sums trying to do this job. But it can be surprisingly easy to start doing it, if you have some self-awareness.

All of us buy things. We spend on chocolates, toothpaste, biscuits, coffee, tea, clothes, shoes, electronic gadgets, bikes, cars, houses, vacations, what-have-you. Companies make those things and provide those services, finance our purchases, advertise those things, market those things and deliver them.

Consumer demand generates over 60 per cent of India’s GDP. An investor who gauges what’s popular with consumers, can start looking at the balance sheets of companies that stand to benefit. Some of those companies will have great growth prospects.

Obviously various products and services are consumed in very different ways. People buy toothpaste, soap, tea and coffee all the time, even in recessions. They don’t make big ticket purchases of vehicles, or houses, or splurge on vacations. Most invest in the stock market only when they have surpluses.

The first set – the fast moving consumer goods and services people always buy – are perennials. These companies usually have stable balance sheets and steady growth prospects. For investors, it’s a question of finding value and picking up those stocks when share prices looks attractive. That will usually be during recessions when other sectors are not doing well.

A second set consists of big ticket expenses. Those are cyclicals. Auto-makers, the airlines, hotel and hospitality stocks, real estate companies, housing finance companies, other financial service providers like brokerages, see strong growth only when people are upbeat. Revenue and share prices surge during upcycles and contract sharply in downturns. Knowing when to pick up a cyclical is useful.

There’s a third category – let’s call these the necessary but discretionary purchases. Consider textile and fashion businesses, insurers and paint companies. People may splurge on these sometimes. But they buy new clothes and take out insurance, because they must. People also repaint their homes every so often because they must. These are “semi-perennials” – there is always some demand but such businesses do much better when the economy is buzzing.

Keep thinking about your own purchases and those of your friends. Try and mirror your investment strategy to the things you are buying.  This is a good time for picking up FMCGs and it is a good time for picking up semi-perennials. But it is not a good time to invest in big-ticket consumer plays.

The author tracks economic, behavioural and corporate tends, hoping to gauge good avenues of return