Macquarie, Citi Bet on Rural Stocks After Modi's Slim Poll WinBy
Consumer, auto stocks climb, leading benchmark’s rally Tuesday
Earnings recovery expected to be key theme in 2018: analysts
Consumer companies, automakers and fertilizer producers, stars of India’s stock market in recent years, may become even more popular with investors as Prime Minister Narendra Modi sharpens his focus on rural areas after a narrow election victory in his home state.
Analysts from Citigroup Inc. to Credit Suisse Group AG said the Bharatiya Janata Party, which faces eight state elections in 2018, may take measures to boost farm incomes and upgrade infrastructure in the hinterland to quell discontent over depressed crop prices.
“Despite the victories, the BJP is unlikely to interpret these results as business-as-usual,” Neelkanth Mishra and Deepali Bhargava, analysts with Credit Suisse wrote in a note Monday.
The BJP retained its hold in Gujarat by winning 99 seats in the 182-member assembly, just seven more than the majority it needed to govern and the party’s lowest tally in more than two decades. While it managed to contain voter displeasure over last year’s cash ban and the chaotic goods and services tax roll out in July, it lost votes in the state’s hinterland.
The BJP won 72 percent of the seats from urban areas, while the main opposition party got 89 percent of their seats from the villages, according to an analysis published by the Indian Express newspaper.
While the benchmark S&P BSE Sensex gained 0.3 percent on Tuesday, gauges of consumer-appliances makers, automakers and fast-moving consumer products advanced at least 1.4 percent. Hindustan Unilever Ltd., Maruti Suzuki India Ltd., Housing Development Finance Ltd. and Asian Paints Ltd. are among the top-performing Sensex stocks in the past three years.
Here are the highlights from analyst and strategist reports:
- “We expect that a rural pivot in policy focus is possible,” Surendra Goyal and Vijit Jain, analysts with Citigroup Inc. wrote in a note.
- “Rural India, coming off a low base, and with policy support, could throw up interesting opportunities for equity investors.”
- ACC Ltd., Dabur India, Emami, Hero MotoCorp, Mahindra & Mahindra, Mahindra & Mahindra Financial Services and PI Industries among preferred rural picks
- “We doubt if a big fiscal slippage is in the cards, even though the budget speech may focus on rural India and support to farmers.”
- It expects the government to continue with policies to improve subsidy delivery for farmers, more innovations for better price realization for farmers and improvement in the crop insurance scheme
- The electoral cycle will gather pace next year and Gujarat’s closer-than-expected results raise the likelihood of a “less conservative fiscal approach” and “greater emphasis” on rural and agri-related sectors, Aditya Narain, head of research at Edelweiss Securities Ltd.
Bank of America Merrill Lynch
- Reiterate call of playing consumption over investment in run up to summer 2019 poll, Indranil Sen Gupta and Aastha Gudwani wrote
- Likely to be a step up in rural public spend
- Risks of minor slippages amid concerns related to GST revenues, rising oil prices in FY18
- Govt likely to fund greater rural expenditure from greater disinvestment
- Expects more government focus on rural with measures such as minimum support prices for more crops, buffer stocking for crops below MSP, public investment in agri sector
- Recommend stocks that benefit from rural and infra spending
- Top picks Hindustan Unilever, Hero MotoCorp, NCC, Larsen & Toubro, IndusInd Bank and Titan
- “With the overhang of state election results behind, we expect the market to revert to fundamentals”
- Earnings results for the second half of fiscal 2018 could see sharp earnings recovery, led by low base of demonetization and signs of pick up in rural consumption
- Top ideas ICICI Bank, State Bank, Shriram Transport Finance, Repco Home Finance, Indraprastha Gas, Emami, Titan, Larsen & Toubro, Bharti and Mahindra & Mahindra